CHAN KIT YEE v. THE UNITED INVESTMENTS OF HONG KONG AND SINGAPORE LTD

1988, No. A563

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The plaintiff is the purchaser and the defendant vendor under an Agreement for Sale and Purchase dated 8th December 1987. The defendant purported to rescind the contract. The plaintiff queries the validity of the defendant's action. The defendant now concedes its notice of rescission as being invalid, but it is contended that in seeking specific performance of the Agreement for Sale and, Purchase, the plaintiff is not entitled to compensation. That is, in broad outline, the dispute between the parties to these proceedings.

2. Reference need be made to few documents, and evidence adduced on behalf of the plaintiff has not been challanged except within a very narrow compass, in the discrepancy between the D.D sheet measurement or plan measurement and District Land Office measurement or register measurement.

3. Prior to the signing of the Agreement for Sale and Purchase, Mr Chin Sai Lin orally informed the plaintiff that the parcels of land in which she was interested were some 230,000 sq.ft. On or about the 15th October, 1987, the plaintiff was thereupon asked to and did sign a Chinese Consent Agreement in the presence of Mr Chin, Miss Au Yeung, representatives of the defendant and Mr Wong Kong, the estate broker. As can be seen in the Consent Agreement, the plaintiff was under the impression that the land was about 230,000 sq.ft. The price was negotiated and agreed at $17/sq.ft. and the estate broker was to receive a commission of $2/sq.ft. In total the plaintiff was expected to pay $19/sq.ft. for parcels of land represented to her as some 230,000 sq.ft.

4. After the Consent Agreement, at the request of, inter alia, Mr Chin, and with a view to formally confirming the plaintiff's decision to purchase, authorization letters were sent on the instructions of the plaintiff by her solicitors to the defendant and the defendant's solicitors. They are dated the 29th October and the 5th November respectively, both in 1987. The balance of the 20% deposit was subsequently paid, which is referred to in a letter from the plaintiff's solicitors to the defendant's solicitors dated the 24th November 1987. According to the plaintiff who was not cross-examined, the deposit was calculated on the basis of 230,000 sq.ft. precisely and her understanding was that any variation would later be appropriately adjusted.

5. The plaintiff explained that by the time the engrossed copy Agreement for Sale and Purchase reached her solicitors, it was noticed for the first time that the purchase price was $3,942,181.00. That sum, as given in the document, to be divided by the unit rate of $l7/sq.ft. yielded an area of 231,893 sq.ft.

6. Miss Chan, the plaintiff, was concerned that the parcels of land which she was about to acquire were not to be less than 230,000 sq.ft., and she specifically instructed her solicitors to insert in the Schedule to the engrossed copy Agreement for Sale and Purchase words as follows :-

"of an area of not less than 231,893 sq.ft."

 Needless to say that this Agreement for Sale and Purchase was duly signed by the plaintiff and the defendant, and it must be accepted that the defendant thereby confirmed the area of the parcels to be so sold.

7. Miss Chan testified that she had relied on the personal statement of Mr Chin Sai Lin and, from her evidence, also on the conduct and documents (including the Agreement for Sale and Purchase) of the defendant that the parcels to be purchased were 230,000 sq.ft. and over, or at least or about $230,000 sq.ft.

8. The parties are naturally bound by the provisions of the Agreement for Sale and Purchase which they signed. Pursuant to this contract, the plaintiff, as purchaser, caused the parcels to be surveyed. Messrs Knight Frank Kan & Baillieu were accordingly retained and a survey was conducted under the supervision of Mr Tarrant who has had vast experience in the civil service, concentrated in land in the New Territories. It is to be noted that the purchaser, Miss Chan, was obliged under the contract merely "to demarcate the boundary of" the land and that it was not expected to be an exercise of verifying the area measurement. We have been given an insight into the historical background of the steps taken in the preparation of the Block Crown Lease. Rudimentary information was compiled from a cursory survey, made more for identification than for accuracy.

9. The report of Messrs Knight Frank Kan & Baillieu, as supported by the evidence of the Senior Land Surveyor of Yuen Long and Tuen Mun, Mr So, revealed that the stated area of 230,000 sq.ft. is grossly erroneous, thus rendering the conduct and statements of the defendant prior to the signing of the Agreement for Sale and Purchase bald misrepresentations for the purposes of these proceedings.

10. On or about the 29th December 1987, by a letter of even date, the solicitors for the plaintiff informed solicitors for the defendant of Mr Tarrant's report. The defendant was briefed, in particular, on the total area of the two parcels, which is in fact only 188,555 sq.ft. The said letter from the plaintiff through her solicitors was couched in the following terms :-

"As the purchase price is calculated on the basis of $17/sq.ft. as stated in our letter of 5th November 1987, the purchase price should accordingly be reduced by $736,746, i.e. $17 x 43,338 sq.ft."

11. It was and may fairly be said to be an intimation, seeking an abatement in price. To that intimation, by a letter of the 11th January 1988, solicitors for the defendant responded as follows :-

"Your allegation that the property is only 188,555 sq.ft. is not admitted and is in any event irrelevant as that is not the essence of the agreement. The description given in the Schedule is based only on the registered footage as stated in the previous assignment. The fourth paragraph of the said letter is also not admitted and we are instructed to give you notice of rescission pursuant to Clause 5 of the Sale and Purchase Agreement dated the 8th December 1987 as amended by our letter (sic) agreement of` 31st December 1987 which we hereby do."

Thus by a stroke of the pen, the defendant through its solicitors, purported to rescind the Agreement for Sale and Purchase pursuant to Clause 5 thereof.

12. On the 14th January 1988, by a letter of even date sent by solicitors for the plaintiff to solicitors for the defendant, the plaintiff caused to be sent over the balance of the purchase price in the sum of $2,416,998.80, representing the purchase price at the rate of $17/sq.ft. on an area of 188,555 sq.ft.

13. It is necessary to go back a little in time to the transactions and documents relating to the acquisition of the same parcels by the defendant, on which it now so heavily relies. Integrity is not a matter under attack. What is being complained of, in common parlance, is whether or not the defendant, through its officers or by conduct, has been cautious enough in making these misrepresentations.

14. We need go no further than the Agreement for Sale and Purchase dated the 7th October 1976 signed between one Mr Chan Tai as vendor and one Mr Lam and Mr Chin Sai Lin as purchasers. The two parcels in question were thereby agreed to be sold to Mr Lam and Mr Chin and the instrument recited the total area as being about 231,893 sq.ft. It was recited as "be accurated according to the record of the District Office". It is quite unnecessary to try to understand that expression. The position must be : the parties were mindful that reliable measurement confirmation was lacking and that the stated figure could only be given as an estimate, based on some record in the District Office.

15. Having signed that instrument of the 7th October 1976, next year, on the 11th August 1977, Messrs Lam and Chin agreed to sub-sell the same parcels to the defendant, signing a Supplemental Agreement as confirmors. In the Supplemental Agreement, the previous agreement was recited. When the Assignment dated the 1st December 1977 was executed between Mr Chan Tai as vendor, Messrs Lam and Chin as confirmors and the defendant as purchaser, it was apparently thought prudent to procure a vendor's covenant to the effect that if the area was ever found to be less than 231,893 sq.ft. with professional aid, "the vendor shall at his own cost and expenses, on demand of the purchaser, assign, transfer or convey unto the purchaser or to whom the purchasers may direct or appoint an area of land adjacent to the said lots of land to make up for the deficiency in area." The defendant, as well as Messrs Lam and Chin, clearly entertained some doubt as to the correct and accurate measurements of these parcels.

16. Evidently, unless there are good explanations for the change of attitude, it was unforgivable of the defendant or Mr Chin not to convey such misgivings to the plaintiff but state categorically that the parcels are, about or at least, 231,893 sq.ft. or that the total area of these parcels is not less than 231,893 sq.ft. The plaintiff ought to have been put on notice of the defendant's own anxiety. It could be open to argument that the plaintiff herself and/or her legal advisers must have been aware of the usual uncertainty in area measurement of New Territories plots, but that has not been the stance taken by the defendant. One of the salient features in this case is stone silence on the part of the defendant in the face of all these accusations.

17. No evidence has been led by or on behalf of the defendant except for the limited amplification through Mr So, the Senior Land Surveyor of Yuen Long and Tuen Mun.

18. That represents the totality of the evidence.

19. There were misrepresentations made before the signing of the Agreement for Sale and Purchase, both through Mr Chin, in correspondence and by conduct of the defendant. Section 3(1) of the Misrepresentation Ordinance has been invoked by the plaintiff and it reads as follows :-

"3(1)    Where a person has entered into a contract after representation has been made to him by another person thereto and as a result thereof he has suffered loss, then, if the person making the representation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding the misrepresentation was not made fraudulently, unless it is proved that he had reasonable grounds to believe and did believe up to the time when the contract was made that the facts represented were true."

20. The defendant has disclosed no reasonable grounds for giving such unqualified information. Section 3(1) applies.

21. It is submitted that the defendant is immunized from these prior misrepresentions on the force of an observation of Russell L.J., as he then was, in George Wimpey and Co. Limited v. Sohn, [1967]1 Ch 487 at 509, Letters C/D. Lord Justice Russell was there commenting on the effect of a misrepresentation made prior to the formulation of the contract. Once the contract is signed, the learned Lord Justice observed, "it cannot be said to have induced the contract because the contract itself contained an equivalent provision". Counsel did not elaborate. That case was decidedly before the Misrepresentation Act 1967. A further distinction could readily be drawn from the very fact that whilst the plaintiff here relies on misrepresentations made before and in the Agreement for Sale and Purchase, in the example of Russell L.J. the representee was regarded as no longer being induced by any prior misrepresentations once the contract containing an equivalent provision was entered into. Here, Miss Chan's claim of continued reliance on these prior misrepresentations has not been sought to be refuted. I shall come back to section 4 of the Misrepresentation Ordinance. Section 3(1) is clearly applicable to the plaintiff.

22. The letter dated the 29th December 1987 containing what I have described as an intimation or at best an invitation for an abatement in price focused on the plaintiff's intention as well as her understanding of the contract situation. Solicitors for the defendant purported to rescind the Agreement for Sale and Purchase abruptly by their letter of the 11th January 1988. Thereafter the plaintiff did, through her solicitors, insist on a reduction in price.

23. In this case, I could assume the letter of the plaintiff's solicitors dated the 29th December 1987 as an objection or requisition within the meaning of Clause 5 of the Agreement for Sale and Purchase, which reads as follows :-

"5.    If the purchaser shall make and insist on any objection or requisition which the vendor shall be unable (on the ground of difficulty, delay or expense or on any other reasonable ground) unwilling to remove or comply with, or if the title of the vendor shall be defective, the vendor shall notwithstanding any previous negotiation or litigation, beat liberty on giving to the purchaser or its solicitors not less than seven days notice in writing to annul the sale in which case unless the objection or requisition shall have been in the meantime withdrawn, the sale shall at the expiration of the notice be annulled. The purchaser being in that event entitled to the return of deposit but without interests, costs or compensation. No error, mis-statement or mis-description shall annul the sale nor shall any compensation be allowed in respect thereof."

24. Clause 5 should best be considered in two stages, with its last sentence to be dealt with later and the rest of Clause 5 to be examined first.

25. When the defendant, through its solicitors, abruptly sought to rescind by its letter of 11th January 1988, it was left unexplained why the defendant had chosen so to act. It was not specified whether the defendant was unable or unwilling or both to remove the matter objected to or requisitioned.

26. It would offend principle and authority to allow a notice of rescission, so Sir G.J. Turner L.J. had us guided in Dudell v. Simpson [1866]2 Ch 102 at 107, if the vendor does not "show some reasonable ground for unwillingless". This would equally apply to inability. Duddell v. Simpson turned on inability and unwillingless was not at issue. Cairns L.J. analysed the situation in four successive steps at page 109. He said :-

"There are four matters which must concur before there is a right to give notice to rescind the contract. First, there must be an objection to the title; second, there must be an inability or unwillingless on the part of the vendor to remove that objection; thirdly, there must be communication to the purchaser of the existence of an inability or unwillingless; and fourthly, there must be an insisting by the purchaser on its objection, notwithstanding this communication."

That succinctly sums up what must precede a valid exercise of the right to serve a notice of rescission.

27. It is conceded by counsel for the defendant that the plaintiff cannot be taken as having insisted on the "objection or requisition". In re Jackson and Oakshott [1880]14 Ch 851 is accepted as the guiding authority, where a condition in the following terms was considered :-

"If the purchaser shall insist on any objection or requisition (not being a claim for compensation falling within the 9th of these conditions) the vendor shall be unable, or the ground of expense shall decline to remove or comply with, the vendor shall, notwithstanding any intermediate or pending negotiation, or any litigation which the purchaser may have commenced, or any attempt to remove or comply with such objection or requisition, be at liberty by notice in writing signed by him, or his solicitors, and delivered to the purchaser or its solicitors to rescind the contract."

Hall, V.C. had this to say, at .p.855 :-

    "It is not making an objection but there being an objection made, they insist upon it."

28. It would be only too comforting for me to embrace concession made by Mr Woo on behalf of the defendant, but it does seem that the plaintiff had insisted on the "objection or requisition" in subsequent corresondence as reflected by the letter of her solicitors of the 14th January 1968, whereby a cheque reflecting an abatement in price was sent to the defendant through its solicitors.

29. Nevertheless the notice of rescission suffers from a further defect. Clause 5 of the Agreement for Sale and Purchase laid down a seven days' notice. A notice without giving time is evidently a bad notice for the purposes of Clause 5 of the contract. This case is decidedly different from In re Dames and Wood, [1885]29 Ch. 626, where the condition of sale did not allow time in the notice of rescission.

30. Moreover, the defendant has also led no evidence to rebut Miss Chan's accusation that the square footage so categorically given without qualification, particularly in the Agreement for Sale and Purchase, had been provided with a degree of recklessness. The exercise of the right of rescission under Clause 5 is, on good authority, nevertheless subject to the qualification that the vendor must not himself be guilty of recklessness. See Baines v. Tweddle, [1959]1 Ch. 679. Before the defendant is entitled to call in aid its right to rescind, "there must be no failure of duty on his part, no element of shortcoming, and it must have committed nothing which an ordinarily prudent man, having regard to his contractual obligations to other person, is bound to do". See In re Jackson and Haden's Contract [1980]1 Ch 412. At p.421 Collins M.R. was of the opinion that :-

"[The vendor must not do] less than an ordinarily prudent man, having regard to his relations with another person, when dealing with him, is bound to do; therefore where, knowing the exact facts, he has recklessly made a description of them which would mislead another person who did not know as much as himself (even though he thought the person might know as much as himself), there is a clear failure of duty on the part of the vendor which fairly disentitles him to say that a clause introduced into the contract for his benefit is introduced to meet such case as that which has arisen here, namely, a reckless disregard by the vendor of his duties as to accuracy of statement when he is making a statement with a view to other people acting on it as correct."

The Master of the Rolls continued at page 422 :-

"On that ground it is enough to say that this particular condition must be read (against persons who are taken to have introduced it and introduced it for their own benefit) as not applying to a particular case to which they seek to apply, namely something arising wholly and solely out of their own recklessness in the manner in which they have formulated the contract."

31. The defendant had not discharged this burden cast upon it in its description of the area of the land in the contract. The defendant could not properly resort to Clause 5.

32. The notice of rescission has in fact been conceded by counsel for the defendant to have no legal effect. As a matter of fact, for the reasons I have just given the defendant could not avail itself of the right of rescission under Clause 5. However, I have endeavoured to analyse this case afresh with the aid of the various authorities submitted by Mr Chan in deference to the efforts he has made. Therefore, with an invalid notice of rescission, the Agreement for Sale and Purchase is subsisting.

33. The remaining question posed for my consideration is whether the specific performance sought by the plaintiff should be coupled with an award in damages. That leads me back to the last sentence of Clause 5 of the Agreement for Sale and Purchase viz. "No error mis-statement or mis-description shall annul the sale nor shall any compensation be allowed in respect thereof". With this provision, error in area, big or small, would not entitle a purchaser to any payment of compensation in his claim for specific performance. The plaintiff is not seeking to annul the sale but to enforce the contract by specific performance. Therefore, only the latter part of this last sentence is pertinent, and the short point is whether or not she can claim an abatement out of the purchase price for a smaller area.

34. In delivering the judgment of the Court of Appeal on the 16th March, 1989 in Chiap Hua Flashlights Ltd. v. Markfaith Investment Ltd., Civil Appeal No. 112 of 1988 unrep., Clough J.A. endorsed the decision In re Terry and White's Contract, [1886]32 Ch. D. 14 in these terms : "If such a contract contains as well a provision that no compensation is to be allowed, the purchaser can only enforce it in accordance with that term, i.e. upon payment of the full purchase price". At p.24, Lord Esher, M.R. concluded in In re Terry and White's Contract, supra : "If the contract is to go on, he [the purchaser] shall not have any compensation for a misdescription of quantity". As long ago as 1862, in Cordingley v. Cheeseborough, (1862)4 D.F. 7 J. 379, 384 Lord Chacellor Lord Westbury had this to say : "No doubt it is a very wholesome maxim that vendor shall be required to bring into the market particulars and conditions of sale prepared with great care and fairness, and when the vendor is the Plaintiff for a specific performance, that rule is, in my judgment, properly enforced as against the vendor." Whilst a vendor cannot enforce the contract without paying compensation despite such an exempting condition, a purchaser must take the contract with the exempting condition as he finds it.

35. This is not a case for a decree of specific performance at the instance of the vendor who has materially misled the purchaser, where equity would deny the vendor relief unless compensation is paid, "because the Court of Chancery, where there was a misdescription and a condition that the purchaser should not be compensated for the difference, would not break through its own rule, and given specific performance to the vendor without compensation". In re Terry and White's Contract, supra per Lord Esher M.R. at p.p.24 and 26; see also p.29, per Lindley L.J. This is also not a vendor's action for enforcing a sale against a purchaser on a condition as to erroneous admeasurements, where the error was so great as to compel the purchaser to take, in effect, something wholly different form what "he had a right to expect". See Cordingley v. Cheeseborough, supra. at p.386, per Lord Westbury. The plaintiff claims specific performance as purchaser and she must take subject to this last sentence in Clause 5 without compensation.

36. The last sentence of Clause 5 provides exemption and is as such subject to strict interpretation. The "error, mis-statement or mis-description" therein referred to is arguably restricted to any shortfall within the contract whilst the misrepresentations complained of in this case had occurred before and induced it, giving rise to independents remedies. See p.115, Emmet on Title, 1983 edn. As section 4 of the Misrepresentation Ordinance would permit no "reliance" to be placed on an exclusionary clause such as Clause 5 unless it is shown to be "fair and reasonable in the circumstances of the case" and there is clearly no or no sufficient material placed before me to admit any reliance on the exempting provision in the last sentence of Clause 5, I am content not to dwell on that likely distinction between an error within the contract and the causal misrepresentations preceding it.

37. In conclusion, the defendant must take specific performance as the contract stipulates, that is to say, without compensation as stipulated in the last sentence of Clause 5.

38. I need not express any concluded view on the other matters raised by Mr Chan who has since abandoned his arguments on section 3(2) of the Misrepresentation Ordinance. I must confess that I found it extremely trying to be receptive to counsel's previous submissions on this topic. There is a further allegation of an implied term for an abatement out of the purchase price. The possibility of implying a term in a more formal conveyancing document cannot be entirely ruled out, but it would require very cogent and clear evidence. Solicitors in charge, both for the plaintiff and the defendant, of the drafting of this Agreement for Sale and Purchase have not been called. Scarely anything has been said in the course of these proceedings on or about the alleged implied term. If the matter were pressed by counsel for the plaintiff, I would not likely be able to see the matter eye to eye with him.

39. Lastly, I turn to section 4 of the Misrepresentation Ordinance which provides room for exempting its application, but only to the extent that this court would allow. Section 4 reads :-

"If an agreement (whether made before or after the commencement of this Ordinance) contains a provision which exclude or restrict-

a) any liability which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made

or b) any remedy available to the other party of the contract by reason of such misrepresentation;

that provision shall be of no effect except to the extent (if any) that, in any proceedings arising out of the contract, a court or arbitrator-may allow reliance on it as being very reasonable in the circumstances of the case."

No evidence has been led in this case with a view to persuading me to allow reliance on Clause 5 of the Agreement for Sale and Purchase for the purpose of excluding or diminishing the effect of the Misrepresentation Ordinance. Section 4, suffice it for me to say, has not been successfully invoked by counsel on behalf of the defendant.

40. Specific performance should, in the circumstances, be decreed and in the exercise of my discretion, the same is hereby ordered. Following the guidelines in In re Terry and White's Contract and the Court of Appeal's decision in Chiap Hua Flashlights Limited, specific performance decreed for the benefit of the plaintiff should not be accompanied by any award of compensation. The plaintiff is caught by the last sentence in Clause 5 in the Agreement for Sale and Purchase. But I must hasten to add that the Misrepresentation Ordinance, particularly its section 3(1), prevails in the circumstances of this case. The defendant has adduced no evidence to eliminate or restrict the effect of section 3(1), or to satisfy me, pursuant to section 4 of the Ordinance or otherwise, that the same should be excluded.

41. In conclusion, a decree of specific performance simpliciter in favour of the plaintiff is ordered. The plaintiff is to have damages for loss as a result of misrepresentations she had acted upon to the extent of $736,746, representing a multiplication of the deficiency in area by the unit rate of $17/sq.ft. The rest of her prayers need not be dealt with. The plaintiff obviously must be given costs of these proceedings against the defendant. The Counterclaim of the defendant be dismissed likewise with costs to the plaintiff.