MOK LAI KUEN AND ANOTHER v. WILL RISE LTD

HCA 1736/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1736 OF 2000

____________

____________

_______________

J U D G M E N T

_______________

1. This is a claim in which the buyers of a flat in Kowloon seek rescission of the contract for sale and purchase or in the alternative damages.

2. The buyers, the plaintiffs, are sisters in a close-knit family. The seller, the defendant, was the developer and in the first instance owner of the development called the Arcadia in Forfar Street, Kowloon. The Arcadia is a residential complex of two towers of fourteen storeys, four flats per floor, and four semi-detached duplex houses. Its common areas include open-air swimming pools, landscaped gardens and a children's playground. Construction was completed in 1989.

3. The defendant (Will Rise) is a subsidiary of a group of companies called for convenience the Sino Estate Group, which is a prominent developer in Hong Kong. At all material times management of the Arcadia has been undertaken by a company called Sino Estates Management Limited (SEML) which is also part of the Sino Estate Group. In a valuation report undertaken recently for the purpose of this action Mr Ian Cullen stated that the locality is a largely tranquil environment. Of Arcadia he described it as having:

"......an above average level of finish for blocks of this age and in this location; sound decorative condition, and attentive on site management/security personnel."

4. For the first ten years of its life the units of Arcadia were rented by Will Rise to individual tenants. Ownership of the complex comprising the individual units, houses and common areas remained with Will Rise. Management was delegated to SEML.

5. In 1998 a decision was made within the Sino Estate Group to sell the individual units in Arcadia. A Deed of Mutual Covenant (DMC) was prepared having the usual ultimate purpose of vesting ownership, management and control of the common areas of the complex in the owners of the units. SEML contracted in the DMC to continue to manage Arcadia under the new regime.

6. The task of promoting, marketing and preparing of the preliminary conveyancing documents was handed to Sino Administration Services Limited (SASL) a member of the Sino Estate Group. SASL designated a particular unit to be a show flat and site office. At the material time this was Flat A, 5th Floor, Block 2 (the Show Flat). Staff members of another of the group Sino Real Estate Agency Limited (SREAL) were rostered to man the office and be at the Show Flat to foster sales.

7. The second named plaintiff (Madam M L Mok) and her husband Dr James Caldwell chose to buy one of the tower block units. By February 1999 they were committed to the purchase and were to move in once decoration they undertook was completed. This purchase by her sister and brother-in-law prompted interest by the first named plaintiff (Madam Mok) in the same complex. A divorcee, she was looking for a place to house herself, her two children, her mother and their domestic helper. Prices were down from the giddy heights of 1997. Marketed at between $4 million and $5 million, the Arcadia units were within her budget and the proximity of her sister's family was a material factor.

8. On 15 February 1999 Dr Caldwell and Madam M L Mok were due to meet on site a real estate agent employed by Centaline Property Limited (Centaline) called Eugene Cheung, who had introduced them to the unit that they had bought and they were using him to assist with the decoration. Madam Mok joined them so that she could look out for a unit for herself. Also in the party was a friend Madam Cheung Pik Yau. Eugene Cheung led the way to the show flat. On the way they passed a ground floor garden flat whose address is Flat C, Ground Floor, Block 2 (Flat C Ground Floor). It was in the course of decoration. Madam Mok was attracted to the flat and its garden and said so. But they went first to the Show Flat to look at that.

9. The timing of the party's arrival at the Show Flat, and what was said when they got there, is in material dispute, the determination of which is an issue to be resolved in the trial. It is Madam Mok's account that they arrived sometime in the afternoon, after 2 p.m. It had the appearance of a pro-tem office, with desks, chairs, promotional literature and price lists. Two men were present. One was a security guard. The other sitting at a desk was a man she had not met before. She formed the view that he was employed to promote the flats for sale. He came over, greeted her and said in Cantonese: "Please feel free to take a look. Previously all the flats were leased to tenants. All the flats in Arcadia are the best in the vicinity. The tenants liked their flats very much. The transport is a very good network. Prices are low a real bargain." She asked him if she could take a look at Flat C Ground Floor. His response was: "Of course. That is a very good flat. If it is not a good flat, why should we plan to use it as a show flat as well!"

10. Whether these words were said and if they were to what effect, are crucial to this trial. Alerted at some future date to the importance of identifying this man, Madam Mok visited two different developments being sold and marketed by Sino Estate Group. She recognized one of the agents with the surname Mak as being the person who had spoken to her. During the course of the trial an employee of SREAL called Mak Kwok Keung (Mr Mak) was presented to her and she recognized him as one and the same person who had approached her at the Show Flat, greeted her and said to her the words described. She was the only person to give evidence to that effect. She said of those in her party only her sister Madam M L Mok was within earshot; she made no witness statement and was not called. I shall come to Mr Mak's account in due course.

11. The party returned to Flat C Ground Floor. Mr Mak did not go with them. Madam Mok was impressed and said she was keen to buy. The listed price was $4.486 million. Dr Caldwell proposed a counter-offer; he had managed to buy at below list price himself. Eugene Cheung was told to try out the vendor at $4 million. He said he would get his senior Eric Lam to negotiate on their behalf. Later that day he rang to tell them the vendor would sell at $4 million. They were directed to the Tsim Sha Tsui offices of SREAL and that same afternoon Mesdames Mok and M L Mok committed themselves as purchasers by signing a provisional agreement for $4 million. Madam M L Mok was made a co-purchaser to recognize her contribution of some of the down-payment and her willingness to assist with the mortgage. The provisional agreement professed itself to be a binding agreement. It recorded payment of a preliminary deposit of $200,000. It required the purchasers to attend the offices of named solicitors to execute a formal agreement and pay the balance deposit. It provided for the following under the heading 'Remarks':

"Gift of stamp duty and solicitors fees (property sold on 'as is' basis)."

Under the head "Term and conditions" it recorded at 7:

"The said premises is sold on an "as is" basis. The purchaser further agrees and acknowledges that the purchaser has duly inspected the said premises and has knowledge of the existing state and condition of the said premises."

Completion was fixed for 22 March 1999.

12. I should mention here that Centaline was acknowledged to be the agency which had introduced the purchasers to the transaction. The card of Eric Lam was attached to the acknowledgment. This acknowledgment entitled him to be paid a commission whilst there is no indication (and none sought) that he (or Centaline) were agents for the vendor Will Rise. I suppose this payment of commission, the 'gift of stamp duty and solicitors fees' and the discount off the listed price are indications it was a quiet market in those days.

13. In the fullness of time the parties signed a formal sale and purchase agreement. Clause 11 headed 'physical condition' stated:

"The purchaser purchases with full knowledge of the physical condition of the property and the fittings and finishes therein and takes them as they stand."

In the conventional way Mesdames Mok and M L Mok became committed to the terms and provisions of the DMC for Arcadia.

14. Completion was undertaken without incident on due date. Madam Mok engaged a decorator to undertake some work on the flat and after that was done, by 13 June 1999, she and the family moved in.

15. But disaster was soon to strike. The flat has two bathrooms. Early in the morning of 15 June foul water carrying raw sewage waste spilled forth from both lavatories, baths, waste pipes and floor outlets and flooded the flat. Madam Mok called for assistance from the management staff on duty of SEML. Help was immediately forthcoming. Staff brought with them sand bags to direct the flood, broke a kerb at the door leading to the garden and swept the disgusting mess out of the flat as best as was possible. The outflow came to an end when a senior technician of SEML named Fong Kwok Shing was called to attend to the problem. In the basement immediately below the flat he identified the main sewage pipe into which all the C units (14 in all) are connected. By opening a drainage lid he relieved pressure which had resulted in a backflow up into the unfortunate Madam Mok's flat. Then he identified what he believed was the cause; a hair clip and cement sand which had lodged in the pipe and blocked the flow of flushing water and sewage. Using a fire hose he cleaned the pipe of such debris; that cured the problem.

16. Returning to Madam Mok's account; she said she was told by staff of SEML that this had happened before; that was why they had a supply of sand bags ready to use. She described the situation as a nightmare. Excrement was scattered everywhere. There was an awful stench. The newly completed decorations were tarnished by water stains. Parts of the wall paper were dirty and became mouldy. The parquet flooring separated and shrank. The front door warped. There was the broken threshold.

17. By this time Madam Mok had become aware of an additional, perhaps related problem. Whenever these was rain there was an accumulation of pooled rainwater in the garden courtyard. It did not drain away for some time afterwards.

18. She lodged a formal complaint with the management office. But in addition she resolved to get an independent report on what had happened and why. For the purpose she engaged a Mr Lonnie Cheung, a qualified and registered engineer in Hong Kong, currently a lecturer in City U in the Department of Building Science and Technology with practical experience in drainage pipes and systems. He attended the scene on 22 June and again on 26 June and his report is dated 20 September 1999.

19. Mr Cheung was subsequently in evidence to enlarge upon the report and be cross-examined on the conclusions he came to. Suffice to say for the meantime that his opinion was that the foul water invasion of Flat C Ground Floor was caused by back pressure in the system which pushed out some of the contents of the pipes at the nearest outlet, the waste pipes in Flat C Ground Floor. He identified the cause of this being not blockage but a design flaw in the system. He noted in the pipelines that there were a number of large radius and small radius bends which he surmised caused an unequal flow and turbulence. Further, a series of bends in the main pipe would inevitably slow down drainage flow and thus discharge. This would be particularly apparent at peak hours, and was likely the primary cause of the accident happening at the time that it did, which was about 7 a.m. His view was that the ground floor flats would be subject to future flooding unless their drainage system was separated from that of the units on the floors above.

20. His visit of 26 June was to observe the pooling in the garden following rainfalls that Madam Mok had described. He noted a build up of pooling to about 30mm (1 1/4"), which then took an unacceptably long time to drain away. Again he identified the fault as a design flaw.

21. Madam Mok having been told by the management staff that there had been earlier incidents of flooding discovered that a former occupant of her flat, called Yu Man Wai, was still living in Arcadia. She called on him and he expressed he was willing to give an account of what had transpired during his occupation of Flat C Ground Floor.

22. Mr Yu told her and was to repeat in evidence that through a company he owned he rented the flat in question from Will Rise under a tenancy agreement which was to have been for a period of two years; from 1st November 1997 to 31 October 1999. But before he did so he observed discolouration and cracking of the floor panels as if there had been flooding. He made it a condition of the tenancy that the flooring be replaced; this was acceded to. He and his wife moved in on 1 November. Then in the early evening of a day in that November there was flooding from the bathroom outlets of foul water and excrement. SEML staff were immediately summonsed and repaired the problem. But there was a repeat; again in the early evening, in November 1998. Again there was the awful mess and stench of sewage and other waste invading the flat. Again SEML staff were called and the problem made good. But Mr Yu was not satisfied it would not happen again. He complained to management. The upshot was that he was given leave to terminate the lease forthwith and lease for a further two years a flat in Arcadia on the 12th floor.

23. Direct evidence of the November 1998 incident was to be forthcoming from one Shiu Kai Ming who, at the material time, was and remains a technician employed by SEML. He, like those ahead of him were to do, opened the main sewage pipe first to relieve the pressure, secondly to establish the cause. He found a towel and cement sand, by which he meant the sort of material commonly used by decorators carrying out internal decoration work, removed them and cleaned the pipe with a fire hose. Testing the system and finding W C water drained away undisturbed, he surmised that the problem was caused by the blockage.

24. In September 1999 Madam Mok sought legal advice. Her solicitors (who represent her in this action) wrote to Will Wise on 17 September 1999 as follows:-

" We are given to understand that on 15 June 1999 at 8:00 a.m., our clients found that the Property was flooded by foul water and human excrements running out of the drainage outlets in the guest and master bathrooms thereof. On top of that, there was also occasional surface area flooding of the Courtyard of the Property after short rain showers. As a result, the decoration to the Property was ruined and damage to the furniture was caused. Our clients also found that it is unhealthy to live in the Property and she is subject to health risk and suffers mental distress.

We are instructed that the flooding above mentioned was caused by the faulty design and installation of the drainage system of the Property. By selling the Property to our clients without disclosing the faulty drainage system and its adverse impact on the Property when you were at all material times well aware of them, you are liable for all consequences, damage and loss suffered by our clients.

In the premises, we are instructed to demand you, which we hereby do, to admit your liability in respect of the loss and damage suffered by our clients within 7 days from the date of this letter, failing which legal proceedings will be instituted against you without further notice. No doubt you would appreciate that once legal proceedings are commenced, further legal costs would be incurred."

25. It is perhaps worthy of note that the letter made no reference to what Madam Mok said Mr Mak had said to her a few hours before she signed up for the flat or the impact those words had on her. Given her pleaded case, this is a significant omission.

26. There was, apparently, no response. Mesdames Mok and M L Mok then issued their writ suing for rescission or in the alternative damages.

27. But there were to be three further incidents. The first on a date Madam Mok has not been able to commit to memory was a relatively minor discharge of drainage water through the waste pipe in the kitchen. This was cleaned up quickly; there was no damage. No report was made. The second in March 2001 was another discharge in the kitchen. Again it was not particularly serious. But worse was to follow. In November 2001 around 4 p.m. Madam Mok's maid reported sewage discharging again from the various outlets in the bathrooms. Again staff of SEML were called to help and did so. On this occasion an engineer of SEML Leung Chak Lam was called to the scene to assist. By trial and error he established that a particular section of the main sewer pipe was blocked which was causing the resultant backflow. He found what he surmised was the culprit; a towel had somehow forced its way into the system. He removed it, and a build-up of debris behind it. He tested the system and the problem was solved. It is his belief that the blockage caused the problem.

28. The records of SEML reveal that incident reports were made and filed following the reported backflow of sewage in November 1997 and November 1998 during the occupancy of Mr Yu and in June 1999 and November 2001 when Madam Mok lived there. The reports are brief and add little to the detail already provided from other sources. But each identifies the cause as being a blockage and the remedial work undertaken to remove it.

29. I come now to the pleadings.

30. For the plaintiffs the statement of claim was amended and then re-amended, the final version forthcoming in December 2001. Clauses 3 and 4 referred to the contract to purchase and subsequent occupancy. Clauses 5, 6, 7, 8 and 9 are the kernel of the plaintiffs' complaint and I repeat them verbatim:-

"5. In order to induce the Plaintiffs to make and complete the Contract and pay the said sum of money to the Defendant, the Defendant represented to the Plaintiffs that:-

(1) All previous tenants who have lived in THE ARCADIA were very happy with their flats and they all lived very comfortably there.

(2) The Property was of the best quality in the vicinity and was a very good flat to live in.

(3) The quality of the Property was so good that the Defendant planned to use it as a show flat.

6. The said representations were made by the staff and/or the agents of the Defendant with authority and for and on behalf of the Defendant on or about 15 February 1999 when the 2nd Plaintiff visited the Defendant's show flat in THE ARCADIA.

7. Acting on the faith and truth of the said representations and induced thereby, the Plaintiff made and completed the Contract and paid the said sum of money to the Defendant.

8. The Plaintiffs have since discovered and the fact is that the said representations were false.

9. The Defendant made the said representations fraudulently and either well knowing that they were false and untrue or recklessly not caring whether they were true or false."

31. In the particulars to these allegations, the plaintiffs referred to the incidents in which Mr Yu and his family were the victims to show that not all tenants were happy with the flats, with which the defendant was well aware; further, that the particular flat in which Madam Mok expressed interest was not, as was well-known, of the best quality in the vicinity, because of those incidents.

32. Further and in the alternative, it is claimed that if the representations were not made fraudulently, the plaintiffs claim relief under sections 2 and 3 of the Misrepresentations Ordinance, Cap. 284.

33. The primary prayer is for rescission and reimbursement of the costs of purchase, or in the alternative, damages being the difference in value between the subject flat, with its inherent drainage problems, and a comparable flat without that fault.

34. The statement of defence has also been the subject of amendment; the final version is dated July 2002.

35. Referring to paragraph 5 of the statement of claim, it is denied that the statements were made. If, which is denied, they were made, it is denied they were representations. If, which is denied, they were representations, it is denied that the plaintiffs were induced by them to purchase the flat. It is further pleaded that the drainage system is in compliance with building regulations and was approved by the Building Authority; that the incident giving rise to the backflow on each occasion was because of the wrongful introduction of foreign matter which caused a blockage. Thus if, which is denied, the representations were made, they were true. All liability is thus denied.

36. In a case founded on fraudulent misrepresentation, the plaintiff is bound to prove:

(a) that the defendant or someone on his behalf made representations to the plaintiff as representee; that is statements of fact as against an opinion or mere sales puff;

(b) the representation was false, and the representor knew it to be false or that there was no reasonable grounds for believing it to be true;

(c) the plaintiff was induced into contracting with the defendant by virtue of having been told the misrepresentation. It need not be the sole inducement, nor will the action fail if is found it would be unlikely to influence the mind of a reasonable person. The action will succeed if the plaintiff can show he was induced;

(d) the plaintiff suffers loss.

37. Within the context of this case it is necessary for Mesdames Mok and M L Mok to prove:-

(a) Mr Mak spoke the words as pleaded to Madam Mok, as agent for the defendant;

(b) those words amounted to representations;

(c) they were false and Mr Mak knew of that or in his mind there was an absence of honest belief;

(d) Mesdames Mok and M L Mok were induced by those representations into buying Flat C Ground Floor;

(e) they suffered loss.

38. And so to the trial.

39. Madam Mok's account of how she came to be introduced to Flat C Ground Floor and forthcoming events I have already repeated. In particular I have recorded her account of what was said in the Show Flat and her efforts to identify by whom, namely Mr Mak. From the witness box she repeated many times the words he spoke to her. She repeated, again many times, that quality was an imperative feature of her decision to buy and that what he represented to her was a vital factor in her decision to commit. She said that the flat being on the ground floor she was a bit worried. But as she was told the tenant was happy, even though it was a ground floor flat, that reduced her worry. Asked what specifically her worry was she said:

"the drainage system; flooding or not. According to my knowledge of flats on lower levels this sort of problems arise."

She reiterated had Mr Mak not reassured her she would not have bought. Asked why she did not make specific enquiry about the flat's drainage system she said

"The one who sold flat should know that."

40. After the event she was not told by management or anyone else what caused the flooding, though she asked. She was not told of the presence of cement sand, or any other foreign matter.

41. She said her family still live in Flat C Ground Floor notwithstanding the horrible experience of sewage flooding and the possibility of a repeat. She said she cannot sell; there is no market. She cannot rent for the same reason. And she cannot repair the problem. In reliance on her expert's account that there is a design flaw in the drainage system which is common property at Arcadia she has not the authority, nor the resources, to undertake the remedial work he has proposed.

42. In effect she has no alternative but to stay put pending the outcome of her action.

43. Next came Mr Yu, the tenant who had taken occupancy in 1997. He recalled his family's temporary occupancy, the two incidents of November in 1997 and 1998 of foul water invasion and their breaking the tenancy after the second. He also said the appearance of the floor panels on first inspection indicating they were rotten and cracked caused him to require them to be replaced as a prerequisite for his taking the lease. He did however say that he did not know what caused their condition, but assumed it might be flooding. He accepted that there was no earlier record of foul water flooding. Asked if he was told what caused the flooding he said he was not.

44. After Mr Yu I heard from Mr Lonnie Cheung, the drainage engineer, whom I shall refer to as Mr L Cheung. His evidence was to recount what I have already recorded. Although accepting that the design and installation of the drainage system of Arcadia was within acceptable standards in the construction industry and the relevant building regulations, he stood by his report that it was a design flaw, not the presence of foreign matter, combined with heavy use of the system at peak time that caused the flooding. He said that the presence of detritus within the system might be a contributing factor, but queried the existence of say a towel in the main pipe, given that that would cause a blockage at the point of entry, affecting the particular unit, before making its way into the main system.

45. That is the evidence of the plaintiffs with which I propose to deal for the meantime. I have mentioned in passing that Mr Cullen, a valuer of many years' experience in Hong Kong, was engaged by the plaintiffs to provide comparative values as a necessary prerequisite to establish loss should Will Rise be found liable in damages. He prepared a report and in evidence produced it. I shall deal with his evidence if and when liability for damages is established.

46. And so to the defence.

47. Although out of order I shall summarize first the evidence adduced by Mak Kwok Keung. I have already referred to him as the agent identified by Madam Mok who was present at the Show Flat and who gave her the assurances of quality and so on upon which she claims she relied. In compliance with proper practice a statement of his intended evidence was provided to the court and plaintiffs in anticipation of its being adopted as his evidence in chief. It was in the context of this case crucially important, because he was the only witness called by the defence to support its pleaded case that no such representations were made. Before dealing with his evidence it is necessary for me to put it in proper prospective. First he volunteered that there were some inaccuracies in the statement and proceeded to detail them. They went to the sequence of events that arose in the Show Flat on the day in question; 15 February 1999. Then he confirmed the truth and accuracy of the statement as amended. But during the course of his time in the witness box he sought to amend it further as its contents came under scrutiny in cross-examination and following questions from me. He explained the errors arose because the content of his statement was given by him over the telephone to the solicitors having conduct of the defence case; perhaps he was misheard, or misunderstood. Following its preparation it was forwarded to him for execution. Prior to that it was "roughly" explained by a senior colleague before he signed it. He did not spot the errors until it was re-read to him shortly before trial. The summary I come to is what might be described as his final version; but I cannot ignore as I shall come to what had gone before.

48. He has been a real estate agent since 1987. It was then that he joined the Sino Estate Group. He is technically an employee of SASL but is regarded as a staff member of SREAL. He was originally a sales representative and that was his post in February 1999, by which time SREAL was engaged to market the Arcadia units. The roster reveals that on 15 February Mr Mak was on site at the Show Flat. He said that at the time about twenty of the flats in Arcadia were on the market for sale. The keys were held in the site office/Show Flat. When the Show Flat is manned two security guards are on duty. The usual format is that when a potential purchaser arrives at the Show Flat and expresses interest the keys of up to three units are released to one of the guards who then escorts the prospective buyer to inspect the same. As agents the SREAL staff on duty are encouraged to engage the interested parties in conversation, give them a price list and generally fuel their interest. But if they are accompanied by an agent it is necessary to be more circumspect to avoid the agent's possible concern that he was being sidelined.

49. Sometime between 11:30 a.m. and 12:30 p.m. two women arrived at the entrance to the Show Flat. They were with an agent. He has no recollection of anybody else in the party. The women it later transpired were the plaintiffs Mesdames Mok and M L Mok. It was not, as Madam Mok had adduced, after 2 p.m. He knew that because 15 February 1999 was Chinese New Year's Eve; the staff had been told they could knock off at 2 p.m. and he did so, promptly. One of the guards approached him and told him that they wanted to inspect some flats; he passed over the keys to three vacant units. There was no communication either between himself and the prospective purchasers or the agent accompanying them. The party left, escorted by the guard. Shortly afterwards, the guard and the agent returned. There was no sign of the two women. The guard told him that the ladies wanted to inspect Flat C Ground Floor. He handed over another three sets of keys why three is not clear one of which was the set for Flat C Ground Floor. In the fullness of time the agent and guard returned. For the first time he and the agent spoke. The agent presented his card indicating he was of Centaline. Mr Mak had not met him before. In his statement he called him Eric Lam but was to concede as one of his amendments that that was the name of the agent representing the purchasers later, when the provisional agreement was signed and his card affixed. He assumed that the man he spoke to was Eric Lam. He asked the agent for feedback. The response was:

"The client is very interested in the premises on the ground floor, but still has to consider."

Then the agent left. Mr Mak said he only saw Mesdames Mok and M L Mok when they appeared at the entrance of the Show Flat at the outset. He did not go up to talk to them, did not introduce himself, did not speak to the quality of the Arcadia flats generally or Flat C Ground Floor specifically. There was no sales patter at all. It would have been against company policy given their attendance with an agent. And there is no direct benefit if a direct sale without the involvement of an outside agent is achieved; the RSEAL agents get no commission or added bonus.

50. He knew Flat C Ground Floor was in the process of being decorated for sale. But he knew nothing of its history; in particular the incidents of sewage flooding.

51. Prior to his departure at 2 p.m. he was telephoned from head office and told that Flat C Ground Floor had been sold.

52. I come now to the evidence of Mr Evans Chow. He is a sales manager of SASL. His evidence confirmed the decision in 1998 by management of Will Rise to market for sale the units in Arcadia and the appointment of SASL to undertake the promoting and marketing, and the manning on site of the Show Flat and sales office by members of SREAL. He said staff members were encouraged to conclude direct sales if possible. But if real estate agents from elsewhere introduced prospective purchasers and a deal was struck, Will Rise paid them their commission. However all along they represented the purchaser and not Will Rise.

53. He said he came to know of the interest of Mesdames Mok and M L Mok in Flat C Ground Floor when on 15 February 1999 a Mr Eric Lam of Centaline arrived at his office in Tsim Sha Tsiu Centre and told him that he represented the Moks and that they were interested in buying but at $4 million, which was $486,000 below the listed price. He remembered the time; sometime between 1 and 2 p.m., just before staff were told they could go, it being Chinese New Year's Eve. The discount was acceptable and he, Mr Chow, prepared the preliminary agreement which was then signed, by all parties, that afternoon. He had not met Mesdames Mok or M L Mok before. As far as he was aware the flat was handed over after completion in a good and clean condition with all drains, pipes, water closets and so on in working condition and repair. Later he came to know of a history of backflow incidents but did not know of those at the time. He did not know that Mr Yu had been an occupier under a tenancy prior to the sale to the Moks. He did not know that he had been permitted to change flats because of a problem with the drainage. He accepted that SREAL was responsible to Will Rise for the tenancies prior to the marketing of the units for sale.

54. I come now to the evidence of the engineers of SEML who were called out to deal with the emergencies at Arcadia in November 1998 (Shiu Kai Ming Mr Shiu) June 1999 (Fong Kwok Shing Mr Fong) and November 2001 (Leung Chak Lam Mr Leung).

55. In fact Mr Fong was not called to give evidence. Earlier he had made a witness statement of the part he played. But by the date of trial he had left the employ of SEML. Invited to attend court he said he was unwilling; he was told he might lose his present job if he asked for time off. The defence elected not to enforce his attendance by a witness summons in the light of that risk; instead I was asked to admit his witness statement as his evidence. Against an objection from the plaintiffs I acceded to the application on the basis that his absence was a material issue as to the weight to attach to its contents.

56. I have already given an account of what Messrs Shiu, Fong and Leung carried out on the days they were called out, and there is nothing that I propose to repeat. The two before me impressed as men having plenty of practical experience and commonsense. No doubt Mr Fong was in the same category. Their collective reasoning, born of on-ground training and hands-on experience rather than academia, was that there was a blockage and with that removed the problem was solved.

57. Mr Cheung Kowk Wa is a recently appointed assistant property manger of SEML whose primary function at trial was to produce the reports held on file of the incidents of November 1997, November 1998, June 1999 and November 2001. I have already referred to these reports.

58. I come next to the evidence of Mr William Cheung. To avoid confusion I shall call him Mr W Cheung. He is employed by Parsons Brinckerhoff (Asia) Limited which company was engaged by Will Rise to investigate the drainage system of Arcadia with a view to testing the findings of Mr L Cheung who had concluded the design of the system was wanting and the probable cause of the backflow and flooding problems which had dogged the occupiers of Flat C Ground Floor. Mr W Cheung was assigned the task of inspecting and reporting on his findings. He gave his credentials which revealed he graduated from HKPT in 1975 as a plumber grade I. He has work experience of 34 years and about 20 years in the fields of water supply and drainage. He is a member of the Hong Kong Institute of Plumbing. He carried out inspections of Arcadia in January 2001 and subsequently in October 2001. He found that the design and general layout and workmanship of the drainage system to be of an acceptable standard and in compliance with the current building regulations. He said that it was common practice, and acceptable practice, that in residential blocks of the size of Arcadia the waste systems of all flats should feed into a common pipe. Noting Mr L Cheung's preference for a separate system for the lower flats he said this would be a design preference for buildings several storeys higher. He took no issue with the number and nature of bends in the design. Bends in a system are a necessary pre-requisite to accommodate it in a structure which will inevitably comprise beams, pillars and other obstructions. And whilst the existence of bends in a system does slow down the passage of fluid passing along it, it is not an issue as long as the gradient is adequate. He found no such deficiency. He did not equate the history of backflowing which occurred with the number of bends or with any aspect of the design. Had it been so he would have anticipated problems on a much more regular basis, even daily at peak times; not just on four reported occasions spanning fourteen years. Noting the records of the management office and work undertaken to rectify the problem on each occasion, it was his view that it was the accumulation of foreign bodies within the system that blocked the free passage of water and sewage; that caused a back up and a discharge through the waste system of the flat in closest proximity, namely, Flat C Ground Floor. Unlike Mr L Cheung, he regarded it as quite possible for foreign objects of the sort found caught in the system to be flushed into the system without necessarily getting blocked at or close to the point of entry, and cause the disruption that occurred at Arcadia.

59. As to the complaint of pooling of rainwater in the courtyard, he found the drainage system was of an adequate design and, free of debris, would allow the rapid drainage of surface water. But the grid intended to restrict the passage of other than rainwater was of an inadequate design, namely, of longitudinal bars. That would not restrict sand and grit from entering the drain. A net grating would be better. Thus the pooling was caused because of a partial blockage in the stormwater drain.

60. His conclusion was that there were no design flaws in Arcadia's drainage system. The problems would not reoccur as long as the pipes were kept clear. To this end he recommended that a regular cleaning and maintenance programme be implemented. The occupants of all of the flats should be warned of the consequences of improper use of the drainage system; in particular, those having renovations should be particularly alert to ensure decorators do not dispose of their dross in this way.

61. The remaining witness for the defence was Ms Cynthia Yung. She is an associate director of Land Elite Surveyors Limited instructed by the defence to test Mr Cullen's findings and provide its version of the value of the subject property and others related. Miss Yung, like Mr Cullen, brought to the proceedings impressive qualifications and a comprehensive report. Interestingly there were material differences in methodology and result. As with Mr Cullen's evidence, I shall put hers to one side to be considered in the event that damages become an issue.

62. And so to findings of fact and how they impact on the law. I have already summarized the various hurdles Mesdames Mok and M L Mok have to surmount as plaintiffs and upon whose shoulders the burden of proof lies before a claim in rescission or damages can be sheeted home.

63. The first is the obvious: were the words claimed by Madam Mok to be addressed to her, spoken?

64. Of course I have her account that they were. There is no corroboration; yet she says her sister was in earshot. But given the circumstances it would not be an unlikely event that words of that nature might have been spoken to her; the prospective impact is beside the point, at least for the meantime. Conversely, the only witness called to counter her account was singularly unimpressive. Mr Mak made a bad beginning when he required material changes to his witness statement before deposing to its truth. And as his evidence proceeded it was apparent that there were other significant differences. It did not take long for me to form a view that he is capable of bending the truth or fabricating an account for the sake of it. What he told me was I believe a collective mishmash of the truth, half-truths and untruths and, where there was no corroboration thus incapable of being relied on, particularly where he and his masters might be implicated. Of course this performance is not of itself proof that he said the words attributed to him. Yet I am satisfied, on balance, that Madam Mok told me the truth; that he did approach her, a prospective buyer in a quietish market, and spoke a few words of encouragement and promotion. That he told me he did not speak to her at all, and why, I do not accept, as a self-serving fabrication. I make no finding on the time of day. This was in dispute, but is not material.

65. Was Mr Mak representing the defendant? It cannot be seriously denied, I think, that he was. As a salesman working for SREAL, the arm of the Sino Estate Group assigned to promote the units for sale of Will Rise, another member of the Group, the relationship of principal and agent is clear and obvious. So; yes, he was representing Will Rise.

66. Were the words a representation? If they were, did Mr Mak know they were false, or in his mind was there an absence of honest belief?

67. It is necessary to establish at this point what at law a representation is. The traditional rule is that it must be a statement of fact rather than an expression of opinion. However, in certain circumstances, an expression of opinion may be regarded as one of fact if it can be established that the person expressing the opinion did not hold it, or could not as a reasonable man having knowledge of the facts honestly have held it; see Chitty on Contracts, 28th edition, paras 6-004 - 6-006. Mere praise by a person of his own goods, inventions, projects, undertakings or other marketable commodities or rights, if confined to indiscriminate puffing and pushing and not related to particulars, is not representation; see Halsbury's Laws of England 4th edition reissue, para 715.

68. Dimmock v Hallett (1866) LR 7 Ch. App. 21 is a time-honoured Court of Appeal case on the point. A purchaser of land claimed to have been misled into the transaction by misrepresentations. In the event his claim for relief succeeded; but not on some of the matters raised.

69. Sir G J Turner LJ said at p. 27:-

"The purchaser further grounds his case on misrepresentations in the particulars. Some of the instances alleged appear to me to be unimportant. Thus I think that a mere general statement that land is fertile and improvable, whereas part of it has been abandoned as useless, cannot, except in extreme cases as, for instance, where a considerable part is covered with water, or otherwise irreclaimable be considered such a misrepresentation as to entitle a purchaser to be discharged. In the present case, I think the statement is to be looked at as a mere flourishing description by an auctioneer.

The next misrepresentation alleged is as to the warping. If the conditions had stated that the land could be covered with deposit within a limited time, and it appeared clearly that it could not be covered within that time, or if it had been stated that the process could be performed at a certain expense, and it was shewn that it could not be performed except at a much greater cost, the purchaser might probably have been entitled to the relief he seeks. But such a vague statement as that the land, "in course of time may be covered with warp, and considerably improved at a moderate cost," puts a purchaser on inquiry, and if he chooses to buy on the faith of such a statement without inquiry, he has no ground of complaint."

70. A more recent case is Chartered Trust plc v Davies [1997] 2 EGLR 83. The Court of Appeal was asked to consider whether material set out in a sales brochure to encourage prospective tenants to rent premises in a recently developed shopping mall amounted to misrepresentation. The brochure stated in part, under the head "Preliminary Details":-

"Situated in the heart of one of the prime locations in Bognor Regis, CLOCK WALK is an exciting new development in shopping malls that offers the perfect setting for successful retailing with an eye to the future.

The Victorian clock tower in the High Street has long been one of Bognor's best loved landmarks. Now it is set to become a focal point of one of the town's most prestigious retail developments, CLOCK WALK.

With its traditional design and bright atmosphere, CLOCK WALK will undoubtedly prove a major attraction for discerning shoppers and the modern mall stall setting will provide an environment that reflects the superior standard of today's retailer.

Situated close to the town's post office, banks and established stores, CLOCK WALK will be one of the most popular locations in Bognor and its combination of prominent position and eye catching facade will ensure an exceptionally high profile for every retailer in the development."

71. Henry LJ said at p. 86:-

".....I get nothing additional from the estate agent's puff, to be found in the "Preliminary Details" already quoted. The judge found in that transparently fulsome description an implicit representation of the future letting policy of the landlords and found his actual letting policy to be in breach of that representation, amounting to a misrepresentation. We live today surrounded by the blandishments of the advertising industry. We are used to them and we take them with a pinch of salt. Read literally, this document praised the location and the design of the development and expressed confidence in its success. It seems to me that even the most naive could not get any legal comfort from that document that they could not get from the lease. From the lease, one gets a clear recognition by the landlords that the enjoyment of the benefit that the tenant took under the lease here depended, in part, on the actions of the landlords in letting and controlling the remaining units in, and the common parts of, this small retail development. I do not regard this as a case of misrepresentation: in my judgment, the real issue is whether this is a derogation from grant."

72. Two Hong Kong cases were referred to me. In Jesselton Limited v Joseph SY & Associate Limited & Others HCA 6934/1996, the principal shareholder of a company engaged in interior design stated to representatives of the plaintiff contemplating engaging the company to undertake renovating work:

"the renovation work would be first class, and the plaintiff would definitely like the result of the renovation work."

73. Chung J said of that at para 26:-

"However, I do not find them to amount to any legally binding representations or warranties. Instead, I consider them to be in the nature of mere "puffs"."

74. In Chan Yuk Yu & Another v Church Body of Hong Kong Sheung Kung Hiu & Another [2001] 1 HKC 621, Burrell J was asked to consider the effect of a sales brochure promoting a luxury residential development. It included the description:-

"regal surroundings for the select few."

He said at p. 627:-

"Furthermore taken in its context, namely on p. 4 of a 27 page glossy and colourful sales brochure, I find it difficult to conclude that it is more than "mere puff" or "sales pitch". It is vague promotional language which, in any event, is not false."

75. So, what of the words that I have now found Mr Mak, representing a prospective vendor, addressed to Madam Mok, a prospective purchaser?

76. It is of course necessary to examine the words themselves and the circumstances in which they were delivered. Madam Mok had appeared, unannounced, at the Show Flat, presumably by her presence a possible buyer. Mr Mak was on duty, to fan interest and encourage sales. They had not met before. Uninvited, he spoke the words now complained of. First of all he spoke generally. It could not have been otherwise. There are at least 120 units in Arcadia. He could not be expected to know if every tenant was satisfied. When she made particular reference to Flat C Ground Floor he said effectively no more than that it was a very good flat. After that the parties parted company, never to meet again. How could it be otherwise but that this was sales patter, almost meaningless, and certainly not intended or appropriate to be relied on as a representation of quality?

77. Nor can it be said that Mr Mak was or must have been aware of shortcomings in the history of Flat C Ground Floor, as to result in a finding that he was praising the quality of a flat that was in fact known to be substandard. It was being decorated, but that itself would not have been unusual given that it had been a rental property now being promoted for sale. And even those of SREAL or other members of Sino Estate Group with direct knowledge of the incidents of November 1997 and 1998 would be entitled to rely on reports that the problems were caused by the infiltration of foreign bodies, rather than that there was an inherent defect in the drainage system.

78. And it is quite apparent as I find that Madam Mok did not treat Mr Mak's words as other than throw-away sales patter. That is as much because of what was not said, or done. Madam Mok not having met Mr Mak before did not ask him to elaborate on what he said to her. She did not invite of him particular details, names or corroboration. She did not require him to repeat to the others of the party what he had said to her. She did not ask him specifically to confirm or corroborate that what he said applied to Flat C Ground Floor. If, as she now says, drainage was seen by her as a potential problem, she did not home in on that to satisfy herself that there was no cause for concern. She did not question Mr Mak on his credentials, his seniority and his source of knowledge. When it came to commitment her concerns, so apparently in the forefront of her decision to buy, were not voiced before putting pen to paper or included as a condition precedent to buy. And when her solicitors wrote the letter the essential parts of which I have reproduced, she could not explain why it was silent on the issue of representations which were false and which induced her to buy.

79. I conclude that the words spoken by Mr Mak did not amount to representations. Even had they Madam Mok was not by them induced to buy. The plaintiffs' claim fails at this hurdle.

80. Before concluding this judgment I think it appropriate for me to deal with the conflicting expert evidence on how and why the backflowing sewage intrusion into Flat C Ground Floor came about. It has happened four times at least during the history of the unit. As Mr Cullen said, this is a quite horrific invasion of an occupant's quiet enjoyment of her home. But after due consideration of all the evidence, I accept Mr W Cheung's hypothesis that these were not due to design failings but to obstructions. Amongst those factors which lead me to this conclusion, the more prominent are the following:

(a) on both accounts, the design and construction are within existing regulations;

(b) the need to have separate systems for the lower floors of high rise buildings is a factor for tower blocks significantly taller than those of Arcadia;

(c) the phenomenon of sewage invasion has occurred irregularly, notwithstanding a high percentage of occupancy;

(d) on each occasion it has happened foreign bodies and detritus have been found to be blocking a main sewage pipe; once cleared the problem has been solved;

(e) tests have established that at full capacity the prospective flow is well within the capability of the system.

81. I conclude that were it necessary for me to have to make a specific ruling on the causation of the backflow flooding, it would have been to rule out a flaw in the design and to pass the blame to those unnamed users who caused or permitted foreign objects to be flushed into the system. Strict compliance with Mr W Cheung's recommendations may avoid a repetition. Likewise in respect of the stormwater drain in the garden.

82. It follows that I do not need to consider further or rule upon the competing findings produced by Mr Cullen and Miss Yung.

83. . The plaintiffs' claim is dismissed.

84. The costs order I make is nisi at first instance. Costs are to the defendant taxed if not agreed.