BEST BUSINESS (ASIA) LTD v. G.O.D. (INTERNATIONAL) LTD

DCCJ 885/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 885 OF 2011

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JUDGMENT

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Introduction

1.  The Plaintiff (by Original Action) (“the Plaintiff”) is the registered owner of one property known as Shops G1 and G2, Ground Floor and Basement, Pak Sha Wan Centre, Sai Kung, New Territories  (“the Property”). The Defendant (by Original Action) (“the 1st Defendant”) was and still is a company registered in Hong Kong. The 2nd and 3rd Defendants (by Counterclaim) (“the 2nd Defendant” and “the 3rd Defendant” respectively) are property agents handling the purported lease of the Property for commissions to be paid by both the Plaintiff and the 1st Defendant. The 1st Defendant had through one of its directors, Mr Lau, on 20 October 2010 signed a document entitled Preliminary Tenancy Agreement (“the Agreement”) with the Plaintiff.  A cheque for a sum of $68,063 was also issued to the Plaintiff at the same time purported to be the deposit money stipulated in clause 8 therein (“the Deposit Money”).

The Pleadings

2.  The 1st Defendant gave notice to act in person on 19 April 2011 after filing of Acknowledgement of Service. It was granted leave by consent to file its Defence and Counterclaim out of time. Its defence was mainly on misrepresentation. As litigant in person, not surprisingly, it did not follow neatly the rules and orders when preparing its pleading.  A hand-written document entitled “Notice” was filed and issued on 26 May 2011 together with the Defence and Counterclaim. The Plaintiff was named as the 1st Defendant by Counterclaim and the 2nd and 3rd Defendants were joined. It was not said under which order the Notice was issued. No issue was taken by the 2nd and 3rd Defendants and a Defence was filed on their behalf on 24 June 2011.

3.  The 1st Defendant has applied to amend its Defence and Counterclaim on 2 November 2012 to set out its claim against the 2nd and 3rd Defendants in the prayer. Mr Hui counsel for the 2nd and 3rd Defendants opposed to the application but agreed that that would not affect their position because, although the pleading was imprecise, one could understand that the complaint was, allegedly, on misrepresentations made by the 3rd Defendant (paragraphs 80-81 of the Defence and Counterclaim). After hearing submissions, I allowed the application to amend.       

Case of the Parties

4.  An outline of the parties’ respective cases would be helpful.

5.  The Plaintiff is now suing the 1st Defendant for damages for breach of the Agreement. The Plaintiff alleges that the 1st Defendant was in wrongful breach by refusing to sign a formal tenancy agreement on a date prescribed therein. It is also the Plaintiff’s case that such damages are to be assessed in the absence of any escape clauses. It asks for $341,811.50 including loss of rental income, outgoings on management fees, government rates and stamp duty.

6.  The defence of the 1st Defendant was that the Agreement had no binding effect as clauses 9 and 10 (“the  Escape Clauses”) had been deleted. Alternatively, if that is not the correct interpretation of the Agreement, they had been misled to hold such belief by the 3rd Defendant and therefore, they should not be held liable. It is for this reason the 2nd and 3rd Defendants were joined. It was said that the directors of the 1st Defendant were given to understand by the 3rd Defendant that they could just walk away if they did not want to comply with the terms set out in the Agreement.  In its Counterclaim, the 1st Defendant also asked for refund of the Deposit Money.

7.  As employer and employee the 2nd and 3rd Defendants run same defence that there had never been any misrepresentation made as alleged. Their respective cases would in fact stand or fall together. It is also their contention that the Plaintiff had failed to mitigate it losses.

Undisputed Facts

8.  The facts leading to the signing of the Agreement are actually not much disputed. Since the previous tenant had left in August 2009, the Plaintiff was approached by quite a few property agents for negotiation of tenancy. At around the same time, the 1st Defendant was looking for suitable premises to start its Food & Beverage business. The 3rd Defendant who had once worked for the 1st Defendant was asked to make the necessary contact with the Plaintiff when the Property was seen to be a nice place for such business. Upon arrangement made by the 3rd Defendant, the first visit was made on 18 October 2010. After knowing that the 1st Defendant was interested, the 3rd Defendant approached the Plaintiff with an offer on 19 October 2010. It was mentioned by the 3rd Defendant that the client would like to secure the Plaintiff’s offer to let and would not resile from the offer by just paying them double deposit.

9.  Counter-offer was made by the Plaintiff. It was also made clear that the Plaintiff was having negotiation with a prospective tenant. The 3rd Defendant conveyed the message to the 1st Defendant and suggested that a contract be signed with Deposit Money tendered on the following day.

10.  The 3rd Defendant then sent to both the Plaintiff and the 1st Defendant a draft preliminary tenancy agreement with the Escape Clauses deleted.

11.  After some email exchange concerning subletting and possible illegal structures, an appointment was made for Mr Lau and Ms Wong to meet the 3rd Defendant at the Property in the afternoon on 20 October 2010 and it was understood that a contract would be signed thereat. They eventually met at the Property and discussed about the terms on the Agreement. The 3rd Defendant explained why he would suggest deleting the Escape Clauses and filled out the Agreement and Mr Lau signed on behalf of the 1st Defendant.

12.  After that, the 3rd Defendant brought along the signed Agreement with the Deposit Money to the Plaintiff. A Mr Fung executed the Agreement on its behalf.

13.  A few days later, the Plaintiff was informed that the 1st Defendant would cancel the Agreement. The Plaintiff responded that it would seek damages for the breach and started working on renting the Property to another tenant but the rent turned out to be lower.

Issues in Dispute

14.  The parties had on 12 April 2012 signed an Agreed Statement Of  Issues in Dispute which were adopted at the hearing:

I.      Whether the Agreement was concluded contract whereby the Plaintiff must let and the 1st Defendant must rent the Property on those terms set out therein;

II.      Whether the 1st Defendant was in breach of  the Agreement;

III.      Whether the 3rd Defendant sole agent of the plaintiff or mutual agent of both sides;

IV.      Whether the 2nd and 3rd Defendants had misrepresented to the 1st Defendant and if so, whether the Plaintiff is accountable therefor.

V.      Whether the damages claimed by the Plaintiff is provable and reasonable.

VI.      Whether the 1st Defendant is entitled to refund of the Deposit Money.

15.  Evidence material to the issues would be dealt with when the issues are resolved.

I. Whether the  Agreement was binding

The Plaintiff’s Evidence

16.  Obviously the Plaintiff’s case is that the Agreement was a concluded contract. Mr Tse, a manager responsible for leasing the Property, was called by the Plaintiff as witness to prove its case.  He said that the Agreement was a complete contract with additional clauses incorporated under “Rider” to address the concern of the 1st Defendant in various matters as requested. 

17.  It is perhaps convenient juncture to set out the terms of the Preliminary Tenancy Agreement.

                                                            Preliminary Tenancy Agreement

                                業主與租客同意以下述條款於

1.       The Landlord and the Tenant have agreed to enter into the formal Tenancy Agreement on or

　　　　　　　　　　當天或之前簽署正式租約。　　　　　

        before   25/11/2010  subject to the terms and conditions herein contained.

                                租約期為　　年　　　　　　　　由　　　　　　　　起。　　　　　　　　

2.       The term of the tenancy shall be 3     year(s) commencing from    1^st December 2010.               

                                在租約生效　　　個月後　　　租客可給了

3.       After the first _____months of the tenancy the Tenant shall have the option to early terminate

　　　　　　　　　　　　　個月通知提前解除租約。　　　　　　　　　　　

the tenant by giving _____months’ notice to the Landlord.

業主須於（甲）正式簽妥合約當天或（乙）在

4.       The Landlord shall deliver vacant possession of the said Premises to the Tenant (a) upon

　　　　　　　　　　　　　　　　　　　　　　　前將該物業交吉予租客。

        signing the formal Tenancy Agreement OR (b) on or before  1^st December 2010.

該物業須作　　　　　　　　　　　　　用途。　　　　

5.       The said premises shall be used for  Commercial  purpose.

該物業之租金為港幣　　　　　　　　　　　　    包括／不包括管理費，

6.       The rent for the said Premises shall be HK$65,000.00 inclusive/exclusive of management fee,

　　　　包括／不包括政府差餉。　　　　　租約期間租客需於每月一天繳付該月租金。

        and inclusive/exclusive of government rates. The rent is payable in advance on the first day

        of each and every month throughout the said tenancy term.

港幣　　　　相等於　　　　月之租金作為租金按金，於租約期間由業主保管。

7.       HK$  204,189.00   equivalent to   3    months’ rental as rental deposit has to be held by the

　　　　　　　　該租金按金須於簽署正式租約時交予業主。　　　

        Landlord during the tenancy term and payable on signing of formal Tenancy Agreement.

港幣　　　之臨時訂金須於簽署本合約時付予業主。簽署正式租約後，　

8.       HK$  68,063.00   as initial deposit is payable on signing of this agreement which is to be

　　                       此臨時訂金將作為租約期第一個月之租金。

        applied as first month’s rental upon signing of formal Tenancy Agreement and Management

        Fee.

如租客未能依據本合約之條款簽署正式租約則已付之臨時訂金將被沒收

9.       Should the Tenant fail to sign the formal Tenancy Agreement in the manner herein contained

　　　　　　　　　　　　　　　　　　　　　　　而業主有權將該物業租出與任何人。

the initial deposit paid hereunder shall be forfeited and the Landlord shall then be entitled at

his absolute discretion to let the said Premises to anyone he thinks fit.

如業主未能依據本合約之條款簽署正式租約則業主除須退還所有租客已付之

10.     Should the Landlord fail to sign the formal Tenancy Agreement in the manner herein

臨時訂金外並須以同等數目之金額賠償租客以彌補租客之損失。

contained the Landlord shall compensate the Tenant with a sum equivalent to the amount of

the initial deposit together with the refund of initial deposit paid hereunder.

基於經紀在促成此臨時租務合約中所提供之服務經紀有權在本合約後向業主收取

11.    In consideration of the service rendered by the Agent in concluding this Preliminary Tenancy

　　　　　　　　　　　　　　　　　　　　　　　　　　　　港幣

Agreement, the Agent shall after this agreement be entitled to receive HK$30,000.00 from

　                    及向租客收取港幣　　　　　　作為佣金該等佣金之繳交日期

the Landlord and HK$ 32,500.00 from the Tenant as commission such commission shall be

　                    不得遲過

paid not later than   1/12/2010.

無論在任何情況下若業主或租客未能依據本合約之條款簽署正式租約　　

12.    If for any reasons either the Landlord or the Tenant fails to sign the formal Tenancy

　                    則毀約之　　　　　　　方　　　　　　　　須即付與經紀

Agreement in the manner herein contained, the defaulting party shall compensate at once the

                        港幣　　　　　　作賠償經紀之損失。　　

Agent HK$__________ as liquidated damages.

業主的代表律師為　　　　　　　　　　　　　　　　　　　　租客的代表律師為　　

13.    The Landlord shall be represented by Messrs.________________.  The Tenant shall be

　　　　　　　　　　　　　　　　　　　　雙方各自負責律師費。

represented by Messrs.________________.  Each party shall pay his own legal costs.  The

                        印花費則由業主與租客各負責一半。

stamp duty shall be borne equally by the Landlord and the Tenant.

除上述條款11 和 12外，本臨時合約會在雙方簽署正式租約時，

14.    Save and except clauses 11 and 12 above, which will survive in the formal Tenancy

　                    由正式租約取代。

Agreement, this preliminary agreement shall be superseded by the formal Tenancy

Agreement, and shall thereafter be of no further force of effect.

附

15.    Rider :

(i)               The management fee for the said premises shall be Hk$3,063.00 per month;

(ii)              The Tenant shall enjoy 2 months’ rent free period from the lease commencement date.  The management fee and government rates shall borne the Tenant solely.

(iii)       The Tenant shall have the right to sub-let part(s) of the said premises and subject to   Landlord’s prop approval.

(iv)       The Landlord shall prove the wooden deck outside shops G1 & G2 of the said premises is a legal structure and is registered in Building Dept.

(v)             Tenant shall enjoy a further optional term of 2 yrs at rental $75,000.00.

(vi)       If there are any building order(s) subject to the said premises, the Landlord shall carry out the reinstatement work to comply with the order(s) at its sole cost.

18.  On the following day, an addition to clause 15(vi) was agreed between the Plaintiff and the 3rd Defendant on behalf of the 1st Defendant: “supplementary to [the] Clause 15(vi) of the Preliminary Tenancy Agreement dated 20th October 2010, the Tenant shall be responsible to reinstate any illegal alteration and decoration works of the said Premises which [were] created by the Tenant solely.”  Mr Tse said the addition would not contradict those terms in the Agreement in particular to clause 15(vi).

19.  The line of cross-examination taken by the 1st Defendant was mainly on the legal effect of the Agreement. It was put to Mr Tse that the Agreement was not binding as there were still negotiations going on, in particular there was still addition after signing (see paragraph 18 above); and that there was no express clause in the Agreement that the landlord shall let and the tenant shall rent (必租必放租). In reply, Mr Tse said that according to his understanding the Agreement was a complete contract and was binding on the parties, the subsequent addition was only to clarify their responsibility which was not really necessary as clause 15(vi) was clear. 

20.  When cross-examined by Mr Hui, Mr Tse confirmed that it was the 3rd Defendant who said that the 1st Defendant would definitely rent (一定租) the Property and he got the understanding that as the Escape Clauses were deleted, the Plaintiff would have to let. He said that the 3rd Defendant also asked whether the Plaintiff would resile from letting, and he said to the 3rd Defendant that if the 1st Defendant agreed to pay $65,000 per month, the Plaintiff would not resile from letting.  

The 1st Defendant’s Evidence

21.  The 1st Defendant’s position is that the Agreement was not a binding agreement until the formal tenancy agreement was to be signed on 25 November 2010. Ms Wong, one of the directors of the 1st Defendant, was called as one of the two witnesses.  She said that the 3rd Defendant had explained to Mr Lau and herself that by deleting the Escape Clauses, neither party would be liable to compensate the other in case the negotiation fell through and no formal tenancy agreement was to be signed. She said that the 3rd Defendant had specifically told her that the Escape Clauses were deleted for the purpose of not to waste any time on negotiating damages and compensation in case of default (費時簽唔成正式租約，到時要傾賠幾多訂啦，費時攪，業主亦唔駛賠比你). From such representation, her understanding was that the Agreement was not binding and the 1st Defendant could still think over the lease and then the Plaintiff could still look for other tenants who can offer better terms.

22.  She agreed that the 1st Defendant had issued a cheque to pay Deposit Money, she said that she had never considered whether the Plaintiff would bank in the cheque or not and that she thought if the deal did not go through the Deposit Money would be returned to the 1st Defendant.

23.  Mr Lau, another director of the 1st Defendant also gave evidence  on how the Agreement was executed. He basically said that the 3rd Defendant had represented to him that by deleting the Escape Clauses, the landlord could not forfeit the deposit and such deposit would be returned to the 1st Defendant. I will highlight his evidence for discussion below if necessary as his account on the incident was fairly similar to that of Ms Wong. 

The 2nd & 3rd Defendant’s Evidence

24.  The 3rd Defendant gave evidence for himself and the 2nd Defendant contending that the Agreement had the same binding effect as a formal tenancy agreement and both the representatives of the Plaintiff and the 1st Defendant had been informed of this. When it came to the conversation as to how the Escape Clauses came to be deleted, the 3rd Defendant’s evidence was that he found that the 1st Defendant was very interested in the Property and would like to rent it, he then suggested to Ms Wong and Mr Lau that the Escape Clauses be deleted so that the Plaintiff could not change its mind. What he had said in actual words was this “Deleted, the landlord could not forfeit the deposit, and you tenant would not compensate deposit (刪左佢，業主唔可以殺訂，你地租客亦唔會賠訂)”. Before all the terms had been settled on the Agreement, they asked what if they refused to sign a formal tenancy agreement, he then told them that they could not back off (唔可以退) but they could consider signing it with a shelf or one dollar company. After that Mr. Lau signed the Agreement.    

Discussion on the 1st Issue

25.  In See To Keung and another v. Sunny Way Limited CACV 25/2006, Yuen JA has summarized the law in relation to provisional sale and purchase agreements in paragraph 4 as follows:

(1)     a provisional agreement is immediately binding on the parties

(2)     it is perfectly possible for the parties to proceed to completion without a formal agreement being signed; and

 (3)    This is all subject to the true construction of the agreement made between the parties in the individual case.

26.  The 1st Defendant without legal representative did not argue on the legal principles but contended that they were misled to believe otherwise. In fact, on evidence, Ms Wong upon my request for clarification had also agreed that the Agreement being a contract must have carried with it binding effect. Mr Lau had said in the witness box that it was for the court to rule whether the Agreement had any binding effect on the parties.

27.  As I can see it, the Agreement had already incorporated all material terms which a lease ought to have. It had incorporated terms dealing with “illegal structures” and other matters as requested by the 1st Defendant. Even Ms Wong or Mr Lau did not name any terms which should be incorporated but had been left out. Apparently there was no such term saying that the Agreement was subject to any condition, for example, upon signing of formal tenancy agreement or upon issue of restaurant license etc.. Quite to the contrary, the wording of clause 1 is clear:

業主與租客同意以下述條款於

1.     The Landlord and the Tenant have agreed to enter into the formal Tenancy

當天或之前簽署正式租約。　　　　　

Agreement on or before   25/11/2010  subject to the terms and conditions herein contained.

28.  From clause 1, it is clear that not only the Agreement was not made subject to the formal tenancy agreement, such formal tenancy Agreement was made subject to the terms contained in the Agreement.

29.  Yuen JA has in See To Keung, supra, described the relationship between provisional agreement and a formal one by saying that “Although it [a provisional agreement] provides for a formal sale and purchase agreement to be signed, such formal agreement would only be to incorporate the express terms of the provisional agreement, to express the implied term, and to add any new terms that may subsequently be agreed.” (see paragraph 4)  

30.  I am of the view that the legal principles set out in See To Keung, supra applies to the Agreement in the present case. 

31.  In my judgment the deletion of the Escape Clauses would not have rendered the Agreement not binding. It is just that there were no agreed terms on compensation in case of default. The true effect is damages, if any, would have to be assessed.

32.  Having considered the relevant evidence and the applicable legal principles. I find the Agreement a concluded contract binding the parties. 

II  Whether the 1st Defendant was in breach

33.  The 1st Defendant did not say they were not in breach. I notice that in the Amended Defence and Counterclaim, the 1st Defendant had put up some reasons for canceling the Agreement. Those reasons included that there being illegal structures and unauthorized alterations at the Property and that the usable area was smaller than what the 3rd Defendant had told them (paragraphs 47-60). Such pleas were however not set out as a defence for not signing the formal tenancy agreement but as an allegation against the 3rd Defendant for having made untrue statements to them in these regards and thus had misled them into signing the Agreement (paragraph 80-81 of Defence and Counterclaim). 

34.  I also notice that Mr Lau had included such complaints about illegal structure in his witness statement, again it was not set out as a defence to say that because of such breach on the part of the Plaintiff, they are entitled to rescission.

35.  In the circumstances, I find that by refusing to sign a formal tenancy agreement on 25 November 2010 as stipulated in clause 1, the 1st Defendant was in breach of the Agreement.

III. Whether there was misrepresentation

36.  I agree with Mr Hui that the pleading of the 1st Defendant was imprecise. It appeared that the complaints on misrepresentation covered two areas:

a)  consequence in case of breach of the Agreement; and

b) suitability of the Property for the purpose of the 1st Defendant.

37.  To establish that there was actionable misrepresentation, the 1st Defendant would have to prove that :

(i)  a representation had been made;

(ii) there was reliance on such representation;  and

(iii) such representation was false;

(a) consequence in case of breach

(i) Whether there was Representation

38.  As said, the 1st Defendant’s case was that the 3rd Defendant had misrepresented to them that there would be no consequence on compensation if they refused to comply with the terms therein. In the words of Ms Wong and Mr Lau, “the Agreement had no binding effect”.                    

39.  Much had been said against credibility of the 1st Defendant’s witnesses by Mr Hui. I must say that their evidence did not appear to be impressive. However, it is the 3rd Defendant’s own evidence in the witness box that what he had said was “Deleted, the Landlord could not forfeit the deposit, and the tenant would not compensate deposit (刪左佢，業主唔可以殺訂，你地租客都唔會賠訂)” (“the Statement”).  Mr Hui did not ask him to clarify what he had meant by the Statement.

40.  Mr Chan submitted that the representation allegedly made was a statement of opinion, intention or law which is not actionable. He submitted that only statements on facts were actionable.  Making the same contention, Mr Hui referred me to Kleinwort Benson Ltd., v. Lincoln City Council [1999] 2 A. C. 349 in which it was held that a statement of law is recognized as not a representation.

41.  It is true that not everything said would amount to representation. I agree that the tradition has been that only statement of fact would amount to representation, but not statement of opinion or statement of law. But the proposition was always in need of qualification and it is now more accurate to say that a statement of law will amount to a misrepresentation unless, in the circumstances, it reasonably appeared that the statement was put forward as nothing more than an opinion on which it would not be reasonable to rely ^[1].

42.  So, applying the above principle in the present case, the question is “was the Statement an opinion on which it would not be reasonable to rely”. The Agreement was produced to the 1st Defendant by the 2nd Defendant through the 3rd Defendant with basic terms printed on it. The deletion of the Escape Clauses was proposed by the 3rd Defendant and in my view it was only natural that he would have to explain the reason for so doing. That was the time when the 1st Defendant was to decide what terms were to be included in the Agreement if it was to be signed; and it is not disputed that effort had been made by the 3rd Defendant to find out the agreement between parties and then have them reduced into writing and incorporated into the Agreement. In my view, it was a crucial moment for making a contract. By the conduct of the 3rd Defendant, he held out to profess the skill and knowledge in how to make out an agreement and I find that he did that in the course of carrying out his duties as a property agent. I do not find that in such circumstance the 3rd Defendant was only making a statement of opinion nor was it unreasonable for the 1st Defendant to rely on. I also find that it was within the expectation of the 3rd Defendant that the Statement would be relied on by the 1st Defendant.

43.  Further in Hirshfeld v L.B. & S.C. Ry (1876) 2 QBD 1^[2] and De Tchihatchef v Salerni Coupling Ltd [1932] 1 Ch. 330 the court had regarded statements as to purport, effect and objects of documents as representations ^[3].

44.  For these reasons, I find that although the Statement made was on the legal effect of deleting the Escape Clauses, it did amount to a representation (“the Representation”).

(ii) Whether there was Reliance

45.  Both Ms Wong and Mr Lau said that they agreed to enter into the Agreement because of the Representation. At that time they would still be making consultation on getting a restaurant license. Both had said in the witness box that even if the Escape Clauses were not deleted, they would still sign the Agreement. Mr Hui said that from such evidence it showed that the 1st Defendant had no reliance on the Representation. I could not agree with this argument. What was material to the mind of the 1st Defendant was not whether the Escape Clauses did exist. It was the effect of their absence that mattered.  Mr Lau said that he would sign only if he was not bound to sign the formal. That was the impression given to him by the 3rd Defendant. I have no doubt that there was reliance. I have already found that such reliance would not be unreasonable.

(iii) Whether the Representation was false

46.  The Escape Clauses before they were deleted are as follows:

9. Should the Tenant fail to sign the formal Tenancy Agreement in the manner herein contained The initial deposit paid hereunder shall be forfeited and the Landlord shall then be entitled at  his absolute discretion to let the said Premises to anyone he thinks fit.

10. Should the Landlord fail to sign the formal Tenancy Agreement in the Manner herein contained the Landlord shall compensate the Tenant with a sum equivalent to the amount of the initial deposit together with the refund of initial deposit paid hereunder.

47.  They are in fact terms commonly used in most provisional agreements concerning disposition of interest in land. They have long been widely accepted as fair compensation to dispose of dispute in case of breach conveniently. Yuen J has described them in See To Keung, supra as “a clause allowing a party who wishes to resile from the transaction within a short period of time after the provisional agreement to ‘buy his way out’”.

48.  So what is the true meaning if they were deleted.  In my view, it means the parties had made no agreement on damages in allowing the other side to buy his way out. The consequence would be that such damages would have to be assessed in case of default. In my view, the correct statement to reflect the true meaning should have been “as compensation the landlord cannot just pay double deposit and the tenant cannot just surrender the deposit (業主唔可以只賠訂，租客唔可以只撻訂) or to be more direct, the landlord shall let the tenant shall rent ( 必租必放租).”

49.  For these reasons, I find that the Representation was false.

50.  The 3rd Defendant said that after he made the Representation, Mr Lau or Ms Wong asked what would happen if they refused to sign the formal tenancy agreement. He said he told them that they could not withdraw (唔可以退), they should consider signing with a shelf company. On whether this was said, I accept the evidence of Mr Lau and Ms Wong that there was no such conversation. I do not accept that after filling out part of the Agreement, the 3rd Defendant would suggest that they could use a shelf company to sign. If this was to be said, it would have been said before they came to the Property on 20 October.  Further, even if the 3rd Defendant did say so, it could not have amended what the Representation had meant to Mr Lau. “Could not withdraw” itself was not clear. The consequence of withdrawal is more important but the 3rd Defendant agreed that he did not say anything further in terms of consequences or compensation.   

(iv) Whether it being actionable

51.  Mr Chan for the Plaintiff said that when the Representation was made, the 3rd Defendant did not make it on the Plaintiff’s behalf. Mr Hui submitted that cause of action under contract is only available for the representee if the representor is a party to the contract or an agent with apparent or ostensible authority, to make the representation on behalf of its principal. The status of the 3rd Defendant at the time the Representation was made is therefore material.

52.  At the trial, neither the 3rd Defendant nor the 1st Defendant took a strong stance in opposing that the 3rd Defendant was agent of 1st Defendant in particular at the time when he was explaining the terms of the Agreement to Ms Wong and Mr Lau. H.H. Judge Marlene Ng has thoroughly discussed the status of a property agent in Wong Jack Keung Victor v Wai Ping Luen DCCJ2539/2005 (19 December 2005, unreported). After reviewing a number of related Hong Kong cases, one of the conclusions of hers was that an estate agent though acting as a broker for both the vendor and purchaser, may assume different roles at different stages of the negotiation leading to a transaction.  Thus whether an estate agent is a dual agent or a sole agent of a particular party depends on the facts of each case.

53.  The duties of an agent is also discussed in [Bowstead & Reynolds on Agency (19th ed.) para.6-019]

“An agent is, in general, under a duty to keep his principal informed about matters which are of his concern… An estate agent must notify his principals of offers received up to the time of exchange of contracts.”

54.  According to the above, I have no doubt that the 3rd Defendant was agent of the 1st Defendant at that juncture in time. He was approached by the 1st Defendant to contact the Plaintiff in the first place, and at the material time he was basically taking instructions from the 1st Defendant and relayed its request to the Plaintiff as and when required in order to give effect to the Agreement. He also passed to the 1st Defendant the response of the Plaintiff. I am of the view that in the circumstances of the present case the 3rd Defendant was not party to the Agreement. I agree that there is no cause of action available under contract for the Agreement.

55.  I also agree with Mr Hui that since the 1st Defendant has not pleaded the Misrepresentation Ordinance (“the Ordinance”) and in light of the evidence before this court the 1st Defendant could not rely on the Ordinance and asked that the Agreement be rescinded.

56.  Mr Hui submitted that for reasons set out above, the only possible claim or defence is negligent or innocent misrepresentation at common law under Hedley Byrne.  He went on to say that a tortuous claim for damages based upon a duty of care, independent of contract or fiduciary obligations, may arise where there have been careless statements (i) in the course of performing a contractual duty to take care; and (ii) in pre-contractual negotiations. On this proposition, he went further to say that as a property agent, the 3rd Defendant in the course of business acting for the 1st Defendant by introducing to them some suitable premises to rent. There does not call for special skill but if it does it is the skill to find suitable premises to satisfy the need of his clients. Anything gone beyond this scope would be outside his contractual duty of care as a property agent.     

57.  The duty of care of an agent is discussed in [Bowstead & Reynolds on Agency (19^th ed.) para.6-017]:

“The degree of skill and care which may be expected of an agent acting for reward has been stated many times and is similar in principle to the normal duty of care in negligence. An agent employed for the purpose of effecting a contract between the principle and a third party must use due skill and care in making that contract. Thus …and an estate agent must use reasonable care to ascertain the general solvency of tenant. Agent must use proper care to ensure that contracts they make are binding in law. An agent does not, however, guarantee the contract; his duty is to exercise reasonable care in making it.”

58.  Applying the principle, to explain the terms in a standard tenancy agreement especially on the part edited by the property agent is certainly in my view not outside his contractual duty of care as a property agent. In his witness statement, the 3rd Defendant said that he understood all the terms contained in the Agreement. In my view, if he felt that it was beyond his contractual duty of care, he should not have in the first place initiated to delete the Escape Clauses and offered an explanation to Ms Wong and Mr Lau. Further he had never said that the 1st Defendant should seek legal advice before signing and there was never reliance on any disclaimer. Moreover, as I have said earlier, such escape clauses are not uncommon as they almost invariably exist in standard provisional tenancy agreements.  I find that the 3rd Defendant did owe a duty of care when he explained the terms to the 1st Defendant especially as he chose to edit the same and put forward an explanation. I find that the 3rd Defendant was in breach of his duty of care when he made the Representation which was false. 

59.  I find that the understanding and impression which Mr Lau and Ms Wong had formed from the Representation was reasonable. That was the plain meaning of what the 3rd Defendant had said.

60.  Mr Hui also submitted the loss allegedly suffered by the 1st Defendant actually flew directly from the act of repudiation. It is contended that there would be no loss if the 1st Defendant had affirmed the Agreement. I am of the view that but for the negligence of the 3rd Defendant the 1st Defendant would not have entered into the Agreement or if the Escape Clauses had not been deleted, the 1st  Defendant’s loss would have been the Deposit Money. In the circumstances I find that there was causal nexus between the act of the 3rd Defendant and the loss now suffered by the 1st Defendant.

(b) Misrepresentation on the Property being suitable for the 1st Defendant’s Purpose

61.  The 1st Defendant also complained that there had been misrepresentation that the Property suited the purpose of the 1st Defendant’s Food & Beverage business. I do not think I need to go into the evidence, suffice it for me to say that I am not convinced that whilst it was clear that Plaintiff had refused to give a warranty that there were no illegal structures at the Property the 3rd Defendant would however endeavour to give assurance of the same to Mr Lau. 

62.  I however find that the 3rd Defendant did say that since the previous tenant could get a license to operate, there should not be problem for the 1st Defendant to get one. Although the first part of the presentation is a statement of fact, more material is the latter part. I am of the view that the latter part is a statement of opinion qualified with reasons for his belief, the 1st Defendant should pass judgment as to whether they should rely on it. In any event, from evidence before me, the 1st Defendant had been undergoing investigation and consultation it only showed that there was no reliance on such statement.

Conclusion on Issue 3

63.  My conclusion on Issue 3 is that I am satisfied the 1st Defendant had proved its case on evidence that the 3rd Defendant had made misrepresentation on  the consequence of deleting the Escape Clauses but not the complaint on whether the property suited the purpose of the 1st Defendant’s business. In my judgment the misrepresentation is actionable.

(v) Whether the 1st Defendant had Mitigated its Loss

64.  It was also Mr Hui’s submission that the 1st Defendant should have mitigated its loss by not refusing to enter into the formal tenancy agreement.  On same factual basis as I have mentioned in paragraph 60, I find it unfair to suggest that the 1st Defendant should have a duty to mitigate its loss.

IV Whether the Plaintiff had  Mitigated its Loss

65.  Mr Hui questioned whether the Plaintiff had made their best endeavour to mitigate its loss. It was put to Mr Tse that to rent the Property out in less than one month’s time for monthly rental of $60,000 was a hasty decision. Mr Tse said that he was not the one who made the decision but as he could see it, there were other offers made after the 1st Defendant had refused to rent the Property but the new tenant made a sincere offer with cheque and contract, so the board of directors agreed to let the Property to them. Mr Tse commented that it might not be fair to criticize the Plaintiff for having made a hasty decision because if the Property was not rented out in good time, the Plaintiff would be criticized for not endeavouring to rent the Property out soonest. So when there was a genuine offer it was taken.

66.  The rent agreed under the new tenancy agreement was $60,000 per month inclusive of government rates and rent and management fees. The lease was for a term of 5 years commencing 1 January 2012. There was also a rent free period for two months. Mr Tse said the Plaintiff had suffered loss and damage for $343,744.

Item	Amount
Rental Income for 34 months (3 years less 2 months rent free period)
$ 65,000 X 34 months	$ 2, 210, 000
Management Fee – 36 months (3 years)
$ 3,063 X 36 months	$ 110,268
Rates
From 1 December 2010 to 31 December 2010
($7,140 - $ 1,500) X (31/92) Seasons	$1,900
From 1 January 2011  to 31 March 2012
($7,140 - $ 1,500) X 5 Seasons	$28,200
From 1 April 2012  to 31 March 2013
($7,140 - $ 2,500) X 4 Seasons	$ 18,560
From 1 April 2013  to 30 September 2013
$7,140 X 2 Seasons	$ 14,280
From 1 October 2013  to 30 November 2013
$7,140 X (61/92) Seasons	$ 4,734
Stamp Duty already paid	$ 3,865
Less:   Rental income from new talent as at 30 November 2013
(From 1 January 2011, less 2 months rent free period)
$60,000 X 33 months	-$ 1,980,000
Less:   Rental Deposit	-$68,063
Total:	$ 343,744

67.  Mr Hui also said that the new tenancy agreement was for a 5-year term but this was not put to Mr Tse for him to deal with, it was only raised in his final written submission. I find it not very fair if this court is asked to make a finding against the Plaintiff without first giving them a chance to deal with it. Further, the 2nd and 3rd Defendants are property agent, they would have no difficulty adducing evidence on the market rent at the material time, but there was none before me.

68.  Having heard Mr Tse’s evidence, I accept that the Plaintiff had already made their best effort to mitigate their loss. I accept that loss and damages suffered by the Plaintiff after giving credit to the Deposit Money is HK$ 343,744.

The Counterclaim

69.  The 1st Defendant has in its Counterclaim asked for refund of the Deposit Money. The Counterclaim was premised on its allegation that the Agreement had no binding effect. Since I have found against the 1st Defendant in this regard, its Counterclaim must be dismissed as well.

70.  Then it comes to the question of whether the 1st Defendant should be indemnified for the Deposit Money paid and forfeited. In view of the evidence of Mr Lau and Ms Wong that the 1st Defendant would still enter into the Agreement even if the Escape Clauses were not deleted, I find that the loss in Deposit Money was not caused by the negligence of the 3rd Defendant; but caused by its refusal to enter into the formal tenancy agreement.   I refuse to order that it be indemnified for the Deposit Money.

Conclusion

71.  Judgment is entered for the Plaintiff’s claim; the 1st Defendant’s Counterclaim is dismissed. The 2nd and 3rd Defendants shall indemnify the loss of the 1st Defendant to the extent of the Plaintiff’s claim.

Order

72.  It is my order that the 1st Defendant shall pay to the Plaintiff a sum of HK$343,744 as damages.

73.  There shall be interest from date of Writ at judgment rate until date of this judgment and at same rate hereafter until full payment.

74.  I also make an order that the 2nd and 3rd Defendants shall indemnify the 1st Defendant for the above.

75.  I make an order nisi that the 2nd and 3rd Defendants do pay costs of the Plaintiff and the 1st Defendant in respect of the Plaintiff’s claim; and the 1st Defendant do pay the Plaintiff the costs in respect of its counterclaim; such costs are to be taxed if not agreed. This order shall become absolute if no application is made to vary the same within 14 days from the date herein.

[1]Para 6-016 Chitty on Contract Vol. 1, 30^th ed.

[2] Per Mellor J: I think there is nothing in law, and certainly nothing in equity, which says that a man who has been induced to execute a deed in consequence of a misrepresentation as to its effect has no defence.   

[3] Para 6-016 Chitty on Contract Vol. 1, 30^th ed.