LEUNG KAI HONG AND ANOTHER v. SHEEHAN DANNY WILLIAM AND ANOTHER

HCMP 1172/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1172 OF 2006

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J U D G M E N T

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1.  The plaintiffs, who are husband and wife, are the owners and occupants, with their child, of a top floor residential flat and roof (“the Property”).  They entered into a provisional sale and purchase agreement dated 17 March 2006 (“the Agreement’) to sell the Property to the defendants, another married couple with two children.  The sale fell through because of a fixed canopy on the roof (“the Canopy”).  The defendants, through solicitors, raised a requisition about illegal structures on the roof; the plaintiffs had the Canopy demolished; but the defendants refused to complete, demanded the return of their deposit and other sums, and when they did not get them, threatened legal proceedings.  In fact it appears that the plaintiffs instituted these proceedings in response to these threats. 

2.  The plaintiffs seek a declaration that they are entitled to specific performance and damages suffered as a result of the defendants’ wrongful repudiation of the agreement and for orders consequential thereon.  The defendants counterclaim for a declaration that the plaintiffs were in wrongful repudiation of the agreement; a declaration that by demanding refund of the deposit, the defendants accepted the plaintiffs’ repudiation and rescinded the agreement; repayment of the deposit and an equivalent amount by way of liquidated damages, as well as the costs of stamp duty and wasted legal expenses; damages for misrepresentation and a declaration that they have a lien on the property for the sums claimed.

The Plaintiffs’ Case

3.  This being a vendor and purchaser summons there is no Statement of Claim, and the plaintiffs’ case appears in the 2^nd affirmation of the female plaintiff, Ms Wong Pui Sze Carmen and in the Re-Amended Defence to Counterclaim, the final version of which was filed in the course of the trial.  It is, quite simply, that the plaintiffs gave substantial performance of the Agreement and the defendants had no right to refuse to complete. 

The Defendants’ Case

4.  Pursuant to an order by the Master, the defendants filed a counterclaim.  Their pleaded case (in a later Re-Amended Counterclaim) is that they entered into the Agreement in reliance on representations made by Ms Wong to the female defendant, Ms Sung that the Canopy was authorised by law.  This was untrue because the Buildings Department had on 22 August 2005 issued a Notice requiring demolition and the plaintiffs admitted having received it.  Further the plaintiffs had engaged an estate agent to sell the Property two days after the issue of the Notice.  The defendants accordingly plead that the representations were made fraudulently, in that they were made deliberately or recklessly, or in the alternative negligently. 

5.  The defendants also rely on a warranty contained in a Chinese memorandum (“the Memorandum”) signed by the parties to the effect that the Property did not have any unauthorised structure. 

6.  The plaintiffs’ defence on misrepresentation is set out in the Re-Amended Counterclaim filed on 15 March 2007 in the course of the trial.

The Issues

7.  These are:

(1)     Were the defendants entitled not to complete because the plaintiffs had repudiated the Agreement by demolishing the Canopy, or would the plaintiffs, by selling the Property without the Canopy, have given substantial performance of the Agreement?

(2)     Were the defendants entitled not to complete on the basis that the plaintiffs had breached the terms of the Memorandum?

(3)     Did Ms Wong make a false representation, whether fraudulently, negligently or otherwise, and are the defendants entitled to damages?

The Notice

8.  The Notice is a Notice by the Building Authority under section 24C(1) of the Buildings Ordinance, Cap.123.  It was issued in Chinese and English, and it is in three paragraphs.  The first paragraph is a notification that the building or building works identified are or have been carried out in contravention of the Buildings Ordinance.  The second paragraph identifies the building works as a “structure” on the roof of the Property.  The third paragraph gives notice that the Notice will be registered in the Land Registry against the Property unless by 21 October 2005 the building or buildings works is or are demolished, or altered so as to comply with the provisions of the Ordinance.

9.  In fact the Notice was never registered. 

The Agreement

10.  This is in the form of provisional agreement commonly used by estate agents in Hong Kong.  In this case the agent was the Centaline Property Agency Ltd (“Centaline”) and it is Centaline’s standard form.  It provides for a purchase price of $2,600,000, deposits totalling $130,000 to be paid in full on the signing of a formal agreement on or before 31 March 2006 and completion on 31 July 2006. 

11.  Clause 7 provides for repayment of deposit plus an equivalent sum as liquidated damages if the vendor fails to complete.  Clause 10 provides for the payment of the agent’s fee of $52,000 by the defaulting party in the event of failure of either party to complete.  Clause 14 is an ‘entire agreement’ clause which reads:

“This Agreement supersedes all prior negotiations, representation, understanding and agreements of the parties hereto.” 

In fact the defendants paid $130,000 by way of deposits but no formal agreement was entered into.

The Memorandum

12.  This was drafted by Ms Chung Mei Yee, Emily, the estate agent who dealt with the parties.  Paragraph 1 is signed by Ms Sung on behalf of herself and her husband and paragraph 2 is similarly signed by Ms Wong.  In translation it reads:

(1)     “I understand that this unit is sold today and know that the banks’ latest valuation is $2,400,000, as this unit has luxurious furnishings, furniture and electrical appliances.  In case the valuation does not meet the purchase price, the client will be responsible for making up the difference.  I will apply for a mortgage loan of over 70% of the purchase price.

(2)     I declare that this unit does not have any unauthorised structures.  No demolition notice has been received from the Buildings Department.  If for whatever reason, a mortgage loan (including 95% mortgage) cannot be obtained due to presence of unauthorised structures, this agreement will forthwith cease to have any effect and the deposit will be refunded to the purchaser at once.  Compensation for the agent’s commission is not necessary.”

The Property, Including Roof and Canopy

13.  The property is a Flat B on the 26^th floor, with roof, of Block II of Fairview Gardens in Tsuen Wan.  The flat has gross floor area of 638 square feet, and the roof is of similar area.  The roof has a parapet with railings round three sides; the fourth side is the wall of the common staircase and the roof space is entered through a metal gate on that side.  Extending outwards from that wall, over about 300 square feet, or half the area of the roof, was the Canopy, now demolished, which consisted of triangular beams covered by corrugated metal sheeting and supported on upright metal poles welded to the vertical support members of the railings. 

14.  On one side of the roof there is a sink with running water and a lavatory in a little roofed enclosure, and on that side there were and still are perspex boards attached to the railings to provide a kind of wall around the sink area.  On the opposite side there was and still is a tarpaulin which could be rolled down by winding a handle.  The side of the Canopy open to the rest of the roof space had plastic hanging curtains on a rail; these could be pulled together in the middle.  With the tarpaulin rolled down and the curtains pulled together, the space covered by the Canopy could be enclosed and protected to some extent from the elements, though rainwater would flow to the space under the Canopy from the rest of the roof area.  The plaintiffs had placed a number of storage cabinets in the area under the Canopy, and these held such things as a television and a stereo system, a refrigerator and a washing machine.  The lavatory is outside the area covered by the Canopy. 

15.  The plaintiffs bought the Property in 2001.  There was then an existing canopy with a canvas cover.  The plaintiffs replaced this with an electrically-operated retractable double canopy.  At some stage the side tarpaulin was added.  In about 1993 the plaintiffs paid about $50,000 to have the electrically operated canopy removed and the Canopy installed.  At that time the plastic hanging curtains were added.

Undisputed Facts

16.  The following facts are not in dispute, or are indisputable.

17.  The plaintiffs on 24 August 2005 signed a non-exclusive agreement engaging Centaline to act as their agent for the sale of the Property.  Ms Chung, who was a senior accounts manager with Centaline introduced Ms Sung to the Property and took her up to see it for the first time on 16 March 2006.  They went up again the next morning, with Ms Sung’s husband, and in the afternoon of that day, the parties signed the Agreement and the Memorandum.  A deposit of $50,000 was paid that day and a further deposit of $80,000 was paid on 31 March 2006. 

18.  The plaintiffs instructed Messrs Tam Pun and Yipp (“TPY”) as their solicitors, and the defendants instructed Messrs Wong & Poon (“WP”) to act for them in the transaction.  Requisitions followed and were dealt with and matters went on normally enough.  The parties agreed to bring forward the completion date to 24 May 2006.  The defendants or their contractors were allowed into the Property on 17 May to do some decoration works and arrangements were made regarding a refrigerator and the relocation of a gate on the roof.  

19.  Then on 24 May, WP wrote to TPY to the effect that the roof of the Property had some illegal structures.  They demanded more information and full details of the same, and asked for postponement of completion until 30 May 2006.  Postponement was agreed.  The plaintiffs, on the advice of their solicitors, engaged a contractor to dismantle the Canopy on 25 May and it was demolished on 26 May.  The plaintiffs had the Property inspected by the Buildings Department and on 29 May TPY wrote to YP asking for further postponement of completion to 30 May, to enable them to obtain a letter of compliance.  However on 30 May, WP replied to the effect that the demolition of the Canopy had rendered the Property materially or substantially different from what the plaintiffs had agreed to sell, and refused to postpone completion.

20.  The plaintiffs changed their solicitors and instructed Messrs Terry Yeung & Lai (“TYL”) and on 2 June, TYL wrote to WP with the Buildings Department’s letter of compliance.  They asked for further time to complete.  However, the defendants would not budge and demanded repayment of their deposits.

21.  The plaintiffs then consulted a firm called C & S Consultant and Solutions, which issued a quotation for $50,000 for the provision of structural consultancy services for the construction of a new canopy to comply with the Building (Construction) Regulations.  The quotation does not appear to include the actual construction work to be done.  In any event, TYL sent this document to WP on 7 June 2006 with a proposal that the plaintiffs would bear this and other costs relating to the construction, and would reduce the price by a total of $76,000.  They demanded completion on this basis.  However the defendants refused, and reiterated their demands for repayment of deposits.

Evidence

22.  Evidence comes from Ms Wong, Ms Sung and Ms Chung.  The plaintiff also called an expert surveyor, Mr Cullen.  There is considerable disagreement both as to what was said between the parties and as to the importance of the Canopy.

23.  Ms Wong’s evidence had a tendency to expand from that contained in her affirmations to what came out in oral evidence in chief, and then under cross-examination.

24.  In brief, Ms Wong’s evidence as it appears from her affirmations is that when Ms Chung brought Ms Sung to look at the Property for the first time on 16 March 2006, Ms Sung asked Ms Chung if the Canopy was a legal structure, and Ms Chung said that there was no problem and pointed to similar structures on neighbouring buildings.

25.  Ms Wong then mentioned the Notice.  She said that she thought that she had received a notice saying that the Canopy was a “structure” (“搭建物”) but Ms Chung said that that did not mean that it was an unauthorised structure (“僭建物”).  If it was, that would be more serious and the Buildings Department would have issued a lot of letters and registered a demolition notice.  Ms Chung had conducted a land search and there was no such registration.

26.  On the following day, before signing the Memorandum, Ms Wong asked Ms Chung again about the status of the Canopy.  Ms Chung reiterated that there was no registration and that an erection was not equivalent to an unauthorised structure. 

27.  The question of unauthorised structure had been raised by Ms Sung on 24 May 2006.  She had said, at a meeting at the Centaline office, that the Buildings Department had issued notices to all the top floor owners.  Ms Wong then asked Ms Chung to check it out; and Ms Chung got the Buildings Department to fax over a copy of the Notice. 

28.  In oral evidence Ms Wong added a considerable amount to her account of the Notice.  She said that when she had received it, she had noted the characters in the second paragraph, namely “搭建物”.  This was not the same as “僭建物”, the distinction drawn by Ms Chung on 16 March.  She had asked neighbours, Mrs Chu and Mr Lee about this Notice; they both had rooftops.  Mrs Chu said that she had received a similar notice and had telephoned the Buildings Department.  She had been told that it was “just routine; the Department had to issue such letters and it would be all right for them to place stuff on the roof”.  Mr Lee had told her that if only half the roof was covered, there was no problem. 

29.  From cross-examination it appears that Ms Wong received similar advice from a decoration contractor, and an architect told her that if the cabinets were moveable they were not illegal structures.  It also appears that Mrs Chu told her, before she put up the Canopy, that it would be all right if only half of the roof was covered. 

30.  Ms Wong said that she had placed the Property with Centaline in October 2005, when she happened to pass its branch office.  She insisted under cross-examination that she had not placed the Property with Centaline or other agents on about 24 August 2005.  At that stage of the trial, the agreement with Centaline was not in evidence – it was Ms Chung who produced it as Exhibit D2 – and was put to her, but of course that agreement is dated 24 August 2005.

31.  Ms Wong said that after she had placed the property with Centaline Ms Chung had later brought up another potential purchaser; and on this occasion she had asked Ms Chung about the legality of the Canopy.  Ms Chung said that she would make inquiries.  

32.  Ms Wong insisted that at the meeting on 16 March it was Ms Chung who drew the distinction between “搭建物” and “僭建物” and told Ms Sung that there would be no problem.  She said that she had done a land search.  Ms Wong also insisted that she mentioned the Notice on that occasion, and that she had never denied receiving any notice when asked about it on 24 May 2006.  Nor did she repeat the assurance that there would be no problem when Ms Sung brought her husband to see the Property on 17 March 2006.

33.  She also said that Ms Chung had told her on 17 March or before that the Notice was only a warning and not a demolition notice; and that when the faxed copy had been obtained, she had apologised and said that she did not know that it was a demolition notice.  What had really been exercising the mind of the parties and that of Ms Chung was that the presence of the Canopy might affect the amount of bank loan which the defendants might get; and it was this which had prompted Ms Chung to write the Memorandum as she did.

34.  As to the Canopy itself, the description I have given of it comes largely from the evidence of Ms Wong as well as the photographs produced.  She said that it was just a shelter but it appears that there was television and a DVD player in one of the cabinets; the roller tarpaulin had been put on the opposite side, so that there would not be reflections on the screen.  There was a washing machine in one of the cabinets and clothes were hung to dry under the Canopy.  It appears that kitchen utensils were kept in the cabinets and the family sometimes ate barbecues or hot-pots under the Canopy, and cooked noodles on an electric cooker there, though they did not generally have dinner there.

35.  The evidence of the expert, Mr Cullen, who never actually saw the Canopy, is basically that because the roof was not enclosed, the Canopy would not affect the saleable area or gross floor area of the Property.  It was a simple temporary style of unauthorised canopy which would not have produced a higher estimated value for mortgage loan purposes.  It could be and was easily removed. 

36.  According to Ms Sung’s affirmation, she was impressed with the utility of the Canopy.  She thought it could serve as an entertainment room for her family or a playroom for her two children.  There was also a lot of storage space.  But she did not know if it was legal, so she asked Ms Wong, who showed her the similar structures on neighbouring rooftops and said that there was no problem because the Buildings Department had inspected and classified the Canopy as a “搭建物” rather than a “僭建物”.  Ms Chung asked if there was a confirmatory letter and Ms Wong said that the Buildings Department would only issue such a letter in respect of an unauthorised structure, but not for an authorised one. 

37.  Ms Sung says that she came back the next day with her husband.  On this occasion she told Ms Wong that she had got a valuation – it was apparently an internet valuation – of $2,390,000 which was far lower than the asking price which was $2,800,000.  Ms Wong said that the Property was sold with all fixtures and fittings and electric appliances, and that they had spent a lot of money on the Canopy which was made of heat insulating material. (This is denied by Ms Wong).  She was once again assured that the Canopy was an authorised structure.

38.  That afternoon, at the meeting when Ms Sung and her husband signed the Agreement, she wanted further assurance; and that was why Ms Chung wrote the Memorandum, which the parties signed.

39.  The question of the legality of the Canopy came to the fore on about 23 May 2006 when the parties were in negotiation about shifting the gate on the roof.  Ms Sung phoned the building management company and was told that the Buildings Department had issued notices to all the rooftop owners about breaches of building registrations.  She telephoned that Department and was told that the file had been passed to the Land Registry for registration of the Notice.  So she got in touch with Ms Wong and Ms Sung and said that this must be sorted out, or she would not proceed with the purchase.  She met them that afternoon, and Ms Wong denied that she had received any notice from the Buildings Department.  Ms Chung requested the faxed copy from the Buildings Department.

40.  There was another meeting on 25 May when the plaintiffs on being shown the faxed copy admitted that they had received the Notice.  They said that they had engaged a contractor to demolish the Canopy.  The parties went to the Property where workers were indeed demolishing it.  At this stage there was an offer to reduce the agreed price by $150,000.  Ms Sung said that she would consult her husband.  She received an oral offer through Ms Chung on 26 May to reduce the price to $2,390,000.  She asked that this be put in writing; but she heard nothing until 29 May when TPY proposed postponement of completion.  She says that she and her husband decided on 27 May not to proceed with the purchase because the liveable area was reduced by 300 square feet and would not be sufficient for their family.

41.  Ms Sung’s affirmation did not deal with the later offer contained in TYL’s letter of 7 June 2006.  In oral evidence she said that her solicitor had advised her that there was no guarantee that whatever was put up according to C&S’s plans would be the same as the Canopy; she would have to await approval.  She went home and telephoned the Buildings Department and was told that the maximum height of any legal structure was 1.5 metres.  It was suggested to her that she had made her mind up and was only interested in obtaining a refund.  She agreed that she was not, after 26 May prepared to negotiate further on the price; as she put it, her husband “thought it was a scam” and “Ms Wong was always changing”.  But as to why she did not accept the offer of 7 June her answer was that she could not be forced to buy something which she did not want and which was not usable.

42.  Ms Sung in cross-examination was quite clear that the reference to “搭建物” came from Ms Wong and not Ms Chung.  Further she said that Ms Chung did not say that she had obtained a land search at the first meeting; this was not mentioned until the meeting at which the Agreement was signed.

43.  The evidence of Ms Chung largely agrees with that of Ms Sung.  In particular, as to the representations made, she says that Ms Sung asked whether the Canopy was permitted by law.  Ms Wong pointed out similar structures on neighbouring blocks.  She said that there was no problem because the Buildings Department had inspected the structure and confirmed that it was a “搭建物” rather than a “僭建物”.  Ms Chung asked whether the Buildings Department had issued any letter of confirmation; and Ms Wong replied that they would only issue letters in respect of an unauthorised structure.  As the structure was authorised she had not received any letter. 

44.  As to the Memorandum Ms Chung said that she wrote it because the plaintiffs wanted an assurance that the Canopy was authorised by law.  In oral evidence she explained that she had written the second paragraph because Ms Sung was particularly concerned that the presence of the Canopy might affect her mortgage.  

45.  Under cross-examination Ms Chung said that she had not heard the term “搭建物” before; the distinction came from Ms Wong.  As far as she knew, a structure was authorised or not.  She had not questioned the matter or asked colleagues about it because her company’s instruction was to obtain a land search; she had done so, on this occasion (she does not give the date) and nothing was registered.  She had obtained the land search only when this purchase was in contemplation; Ms Wong had not raised any question of the legality of the canopy when an earlier potential buyer had viewed the Property, and indeed on that occasion the buyer was not interested in the Canopy. 

46.  As to the Memorandum, and in particular the waiver of commission contained in the second paragraph, she said that if something was not clear on the title or if there was a demolition order the company would not charge commission. 

Evaluation

47.  It is not in dispute that on 16 March 2006, someone drew the distinction between “搭建物” and “僭建物”.  It is argued that because Ms Chung is an experienced property agent, and Ms Wong an inexperienced house seller, it is more likely that this came from Ms Chung.  She and Ms Sung both say that they believed what Ms Wong said because she said it firmly; and this is incredible, because Ms Sung did not want to break the law; why would she simply believe the seller? Also, if Ms Chung had not heard of this distinction before it should have put her on inquiry; she would naturally have made inquiries.  But she did not. 

48.  It is also argued that the wording of the second paragraph of the Memorandum indicates that the assurance that all would be well must have come from Ms Chung; otherwise, why would she include a waiver of her own commission, which she would normally expect to get under the Agreement, no matter who defaulted. 

49.  It is also suggested that both Ms Sung and Ms Chung must be seen as incredible, because in their affirmations they affirmed that the effect of the Memorandum was to warrant that if there was no unauthorised structure or if because of the presence of one, the defendants failed to obtain a loan, whereas the Memorandum only says the latter. 

50.  Mr Man, who is an extremely fluent and inventive advocate, has put up various other arguments both directly and in answer to those put forward by Mr Pao, and I do not propose to go through and deal with them all here, though I have taken them into account. 

51.  I would however say that I am not particularly surprised that Ms Sung and Ms Chung would have believed what Ms Wong said; she was a firm witness.  Furthermore, I have no particular difficulty with the fact that Ms Chung did not pursue the matter of the distinction; what concerned her was whether or not there was a registration, and she found that there was not.  And as to the wording of the affirmations, it must always be remembered that these, like witness statements, are not drafted by the signatory; the normal person will sign what a lawyer puts in front of him, in a language not his own even if he understands it, and hope that the lawyer has got it right, rather than engage in a discussion on its interpretation.  Arguments as to Credibility based on a close examination of the words in a prior statement or affirmation are often advanced, and often advanced at great length; but there is rarely much point in them. 

52.  Ms Wong was, as I have indicated a firm witness.  However there is a very basic flaw in her evidence, and it is this.  There is no dispute that she received the Notice.  Its import is quite clear; there is a structure (“搭建物”) on the roof.  But that is not the end of the matter.  The structure is unauthorised; it must be taken down, or brought within the regulations by a given date, or the Notice will be registered. 

53.  Everyone in Hong Kong knows about unauthorised structures.  They are everywhere.  For someone to say that, on receiving a notice of this sort, she did not really understand it, but just looked at some of the words and not the others, is simply incredible nonsense.  It cannot be explained by lack of education or lack of sophistication.  The import of the letter is clear to the meanest intellect.  No doubt neighbours might have given their opinions, as to whether action was likely to be taken, or what kind of structure would be regarded as illegal.  However all such opinions would be no use against the wording of the letter. 

54.  This is the basic flaw; but there are others.  Again, I will not refer to them all individually, but note in particular that, whether or not Ms Wong had intended to sell the Property before, the inescapable fact is that, as soon as she got the Notice, she put it up for sale.  She tried to hide that fact in her evidence; and she was proved wrong by the production of Exh.D2.  Further, there is simply no way to get past the fact that she hid the fact of the Notice until the faxed copy appeared; and then she apologised for it. 

55.  Having heard the witnesses, where there is a conflict I prefer the evidence of Ms Sung and Ms Wong to that of Ms Wong.  I have no doubt that she deliberately concealed the fact that she had received the Notice and that she represented that the Canopy was an authorised structure when she knew it was not. 

Substantial Performance

56.  It is not in dispute that it is open to the court to find that good title could be given when a vendor offers substantial performance.  The question is whether, in this case what the plaintiffs offered — at first a roof with no canopy, but later a rebate towards the building of a canopy which would comply with the regulations – amounts to substantial performance. 

57.  In Goldful Way Development Ltd v Wellstable Development Ltd [1999] 1 HKLRD 563, Yuen J, as she then was, set out the test to be applied in these terms:

“The test is whether the vendor will be conveying substantially what the purchaser has contracted to get (Rutherford v Acton-Adams [1915] AC 866).

As stated in Spry, Principles of Equitable Remedies (5th ed.) at pp.292 - 6, whether a deficiency is essential and prevents substantial performance depends on the nature of the defect and also on the proportion of the whole of the land that is affected by it, and the purposes or uses for which the parties knew that it was being sold, or ought reasonably to have known that it was being sold, and on any other matters which might reasonably have affected the decision of the purchaser to enter into the agreement or which were known by the vendor to have affected the decision (see also Shepherd v Croft [1911] 1 Ch 521 at pp.528 - 9, Flight v Booth, 5 Will IV 370 at p.377, Hamilton v Munro (1951) 51 SR (NSW) 250 at pp.253 - 4).”

58.  The case of Cashew Holdings Ltd v Pacific Success Enterprises Ltd [2004] 2 HKLC 594, and the other decisions considered therein by Lam J also provide assistance.  It is clear enough that while value is an element to be taken into account it is not the only element, and nor is it the dominant element.  See also the views (obiter) of Woo JA on the  importance of the subjective view of the affected party in Chan Man Choi v Chan Fook Wah [2001] 3 HKC 493 at 511-512.

59.  I have no doubt that the existence of the Canopy, along with its tarpaulin and curtains was very important to the defendants.  They were buying a poky little flat, which was no doubt all they could afford; and this gave them, in effect, an extra room for entertaining and for their children to play in as well as storage space, a drying area and so on. 

60.  I have no doubt that the plaintiffs knew well what the defendants wanted.  They themselves used the covered area for watching television; they used the side tarpaulin to block the reflections on the screen.  They used it for entertaining, and for hot-pot and barbecue dinners.  They also had one child, who spent time there every day after school.  They had the area covered by the Canopy set up, in effect, as an extra room and they obviously used it as a laundry and storage area as well. 

61.  I accept Ms Sung’s evidence as to what Ms Wong said of having spent money on the Canopy and that it was, if not of heat resistant material, at any rate of reflective material which might reduce the heat.  This, it appears, was discussed when Ms Sung asked Ms Wong a number of questions about the Canopy.  Ms Wong also told Ms Sung that her own child played on the roof every day.  The fact of Ms Sung’s having asked questions about the practical utility of the Canopy, as well as her insistence on having assurance that it was legal shows that Ms Wong well knew that the Canopy was important to Ms Sung. 

62.  I realise that Mr Cullen says that the Canopy cannot be regarded as “accommodation” and he puts the value and utility of the Canopy at a low level; but he is giving evidence as a surveyor, who is concerned with the market price between a willing buyer and a willing seller.  He said under cross-examination that if the defendants saw the Canopy as an value enhancement they would constitute a special purchaser, not a normal open market buyer who might wish to demolish a canopy of this sort, so that the normal considerations would not apply. 

63.  In any event, while the actual value of the Canopy may have been low, I can well believe that, in terms of practicality to a couple with a young family, it would greatly add to the desirability of the Property, whatever value a surveyor might put on it.  They were buying and the plaintiffs were selling a poky little flat whose pokiness was greatly alleviated by the Canopy and the area it covered on the roof.  To both sides that would provide, for practical purposes, an extra room, whether or not a surveyor would regard it as such. 

64.  I turn to the offer of 7 June.  This was of course after the completion date but the plaintiffs do not take that point.  It seems to be argued that, if the plaintiffs had accepted this, they could have had a replacement canopy, this time an authorised one, for $76,000.  The plaintiffs would have reduced the price by this amount, and all would have been well.  I do not agree.

65.  Examination of the estimate shows, as I have indicated, that it appears to be for consultancy rather than building services.  The “scope of works” is the construction of a structural steel frame, but the “scope of services” appears to cover planning, consultancy and supervision services, rather than the supply and installation of materials.  Nowhere does the estimate actually say that the cost of building materials is included. 

66.  Ms Sung’s solicitor advised her that plans could be put in, but they would have to be approved and there was no guarantee that she could build an equivalent canopy.  Ms Sung says that the Buildings Department told her that any authorised structure could only have had a height of 1.5 metres.  This is of course hearsay but there is simply no evidence as to what the requirements are, and I cannot say that it is inherently incredible.  Of course if it is right, a canopy of that height would be no use at all.  But whatever the defendants could have put up, if they had proceeded to completion, I think the solicitor was perfectly right.  There is no guarantee that they could have had a legal equivalent of the Canopy for $76,000.  There was no good reason to accept the offer; leaving aside any question of why the defendants would feel able to accept anything from the plaintiffs, after Ms Wong had concealed the Notice.

67.  I conclude that once the Canopy was demolished, the plaintiffs did not offer substantial performance of what they had agreed.  I do not see that the offer of 7 June affects the position.  There was simply no substantial performance.  The defendants were justified in repudiating. 

The Memorandum

68.  If there was no substantial performance, it is not really necessary to consider this issue.  However for the sake of completeness I will do so.  The defendants’ arguments are that there was no fundamental breach because the Memorandum only specified that the Agreement would cease to have effect if the existence of unauthorised structures led to the failure to obtain a mortgage loan.  There is no evidence that the presence of the Canopy affected the amount of loan, and so I think the defendants’ arguments are right.  However, given my other findings this is immaterial.

Misrepresentation

69.  Again, given my findings as to failure of substantial performance there is no real need to consider this point.  There is also no evidence of damages caused by misrepresentation, other than the liquidated damages and other damages which the defendants claim for breach of contract. 

70.  I have however already found that Ms Wong deliberately concealed the fact of the Notice and represented that the Canopy was an authorised structure when she knew it was not.  I have no doubt that the defendants relied on this in entering into the Agreement. 

71.  Mr Man has put forward lengthy arguments that Clause 14 of the Agreement, which bears to supersede all prior negotiations, representation, understanding and agreements of the parties, defeats the defendants’ claim in misrepresentation. 

72.  It is of course correct, and it is not disputed that if a clause of this sort clearly excludes liability for misrepresentation it will be given effect.  Mr Man’s arguments are no doubt very clever, but without going into an exhaustive discussion of the arguments put forward and the cases relied on, I simply do not see how it can seriously be argued that a purchaser, in signing an estate agent’s standard form agreement of this sort, can be said to bind himself to absolve the vendor from liability for fraudulent misrepresentation as to a matter affecting the title.

73.  If that is wrong, I would have no hesitation in finding that Clause 14 must be regarded as having no effect, because it is not reasonable for the purposes of section 4 of the Misrepresentation Ordinance, Cap 284.

74.  The defendants are therefore entitled to damages for misrepresentation but there is no evidence of damages caused thereby apart from the liquidated damages and other damages which the defendants claim for breach of contract.

Result

75.  In the result the plaintiffs’ claim is dismissed with costs to the defendants to be taxed if not agreed.

76.  There will be judgment for the defendants in terms of paragraphs 1, 2, 3, 4, 5 and 8 of the prayer of the Re-Amended Counterclaim.  As to paragraph 7 the defendants will have interest on the sums awarded at the HSBC prime rate plus 1% from 12 June 2006 to the date of judgment and thereafter at the judgment rate.  The defendants are awarded the costs of their Counterclaim to be taxed if not agreed.

77.  Since the judgment is to be handed down the costs orders are nisi.