HOIE SOOK FONG AND ANOTHER v. ISMAIL HALIMA AND ANOTHER

         HCA1974/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1974 OF 2006

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Date of Hearing : 17 and 18 November and 15 December 2008

Date of Judgment : 24 December 2008

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JUDGMENT

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Introduction

1. On 31 July 2006 the 1^st plaintiff attended a public auction (“the auction”) where the property owned by the 1^st defendant namely, Flat B, 2^nd floor, 15, Yuen Yuen Street, Hong Kong (“the property”) was offered for sale by the 2^nd defendant at 3 pm on that day.  The auction was conducted by the 2^nd defendant and the auctioneer was Tsang Kit Chun (“Tsang”) the sole shareholder and director of the 2^nd defendant.

2. The 1^st plaintiff, on behalf of herself and her son the 2^nd plaintiff, was the successful bidder for the property at the auction with a bid of HK$1.88 m.  There were no other bidders after her bid and on the fall of the hammer she was declared the successful bidder. 

3. In accordance with cl. (1) of the Special Conditions of Sale the 1^st plaintiff, on behalf of herself and the 2^nd plaintiff, paid the 2^nd defendant a deposit equivalent to 10% of the purchase price as well as a commission equivalent to 1% of the purchase price.  This was done by a cheque dated 31 July 2006 drawn by the 1^st plaintiff for the sum of $206,800 in favour of the 2^nd defendant and which was given to the 2^nd defendant by the 1^st plaintiff after the auction on 31 July 2006.  The sum of $206,800 is the total of the sum of $188,000 (being 10% deposit) and the sum of $18,800 (being 1% commission).

4. The plaintiffs’ case is that upon being declared the successful bidder at the auction at the bid of $1.88 m there was a binding contract for the sale and purchase of the property between the plaintiffs as purchaser and the 1^st defendant as vendor upon the terms of the General and Special Conditions of Sale.

5. Both the 1^st and 2^nd plaintiffs signed the Memorandum of Agreement (“the Memorandum”) as purchasers of the property.  Under cl. (2) of the Special Conditions of Sale the completion date was on 30 August 2006.

6. The 1^st defendant refused to sign the Memorandum or to complete the sale of the property.

7. The 1^st defendant’s case is that all along she never agreed to sell the property at a price below $1.98 m.  It is her case that the reserve price was $1.98 m and not $1.88 m as the 2^nd defendant contended.  It is also her case that prior to the auction she had validly revoked the 2^nd defendant’s authority to sell the property on her behalf and that the 2^nd defendant had no authority to sell the property at the auction.

8. The 1^st defendant contends that in the circumstances there was no binding contract of sale and purchase of the property between the plaintiffs as purchasers and the 1^st defendant as vendor.

9. The plaintiffs claim against the 1^st defendant for specific performance of the contract for the sale and purchase of the property or damages in lieu of specific performance.

10. In the alternative, the plaintiffs claim against the 2^nd defendant for damages for breach of warranty of authority in the event that the Court finds that the 2^nd defendant was not authorized to sell the property at the auction or that the 2^nd defendant was not authorized to sell it below $1.98 m.

11. Notices claiming indemnity have also been served between the 1^st and 2^nd defendants.

12. By the consent order of Master Lung made on 12 October 2007 it was ordered, inter alia, that the question of the claims between the 1^st and 2^nd defendants be tried at the same time of the trial of this action with the plaintiff.

13. At a pre-trial review hearing on 16 October 2008 it was ordered by consent, inter alia, that there be a separate trial of the issues of liability and damages.

14. This is the trial of the issues of liability.

The Agreed Issues

15. The two main agreed issues are:

(1)     Is the 1^st defendant bound by the contract for sale of the property concluded at the auction on 31 July 2006 and liable to the plaintiffs for failing to complete the sale on 30 August 2006?

(2)     If the answer to (1) is No, is the 2^nd defendant liable to the plaintiffs for breach of warranty of authority to sell the property at the auction?

16. As to Issue (1), the crucial question to consider is whether prior to the auction the 1^st defendant actually revoked her authority to the 2^nd defendant to sell the property at the auction.

17. If the answer is Yes, then it is common ground that the plaintiffs will fail in their claim against the 1^st defendant but will succeed in their alternative claim against the 2^nd defendant for damages for breach of warranty of authority.

18. If the answer is No, then it is necessary to consider whether the 2^nd defendant purported to sell the property at the auction below the reserve price.  It is also common ground that if the 2^nd defendant purported to sell it at the auction below the reserve price then the plaintiffs will fail in their claim against the 1^st defendant but will succeed in their alternative claim against the 2^nd defendant for damages for breach of warranty of authority.

19. In the event that the Court should find that the 1^st defendant did not prior to the auction revoke her authority to the 2^nd defendant to sell the property at the auction and also that the 2^nd defendant did not purport to sell it below the reserve price, it then becomes necessary to consider the following further issues:

(3)     whether the Memorandum is a sufficient memorandum to comply with the provisions of s. 3(1) of the Conveyancing and Property Ordinance (Cap. 219); if the answer is No, then :

(4)     whether there has been part performance of the contract for sale and purchase of the property on the part of the plaintiffs.

The applicable legal principles

20. There is no dispute on the applicable legal principles.

21. An agent, including an auctioneer, who sells property without or in excess of authority will be liable to the purchaser in damages for breach of the implied warranty that he does, in fact, possess the authority exercised (Harvey and Meisel’s Auctions Law and Practice 2^nd Edn. page 118).

22. It is trite that if the authority of the auctioneer to sell a property has in fact been revoked by the vendor before the auction, the auctioneer can give the highest bidder no right to the property, even though the bidder is unaware of the revocation.  (paragraph 30.014 Vol. 1(2) Halsbury’s Laws of Hong Kong 2008 Reissue).  It follows that in such circumstances there can be no binding contract of sale and purchase of the property between the vendor and purchaser should the auctioneer purport to sell the property at the auction.

23. Also, where a reserve price has been fixed by the vendor and the sale is expressed to be subject to a reserve, the auctioneer has no authority to sell below it.  If he purports to do so, no contract is concluded between the vendor and purchaser since all bids amount only to conditional offers and any acceptance is similarly conditional on the reserve being reached or exceeded.  (paragraph 30.007 Vol. 1(2) Halsbury’s Laws of Hong Kong 2008 Reissue).

The witnesses

24. I heard evidence from the 1^st plaintiff and the 2^nd plaintiff.

25. I also heard evidence from the 1^st defendant, Tsang and Paul Man Ka Kin (“Paul Man”) who was the assistant manager of the 2^nd defendant at the material time.

26. I have no hesitation in accepting the evidence of the 1^st plaintiff, the 2^nd plaintiff and the 1^st defendant.  I find that they are honest, truthful and reliable witnesses who told me the truth.

27. I cannot say the same for Tsang and Paul Man who did not impress me as witnesses of truth.  Where their evidence is at variance with the evidence of the 1^st defendant, I have no hesitation in preferring the evidence of the 1^st defendant, whose evidence I accept, to the evidence of Tsang and Paul Man, whose evidence I reject.  They were neither credible nor reliable witnesses.

The Evidence and Findings

28. The 1^st defendant gave evidence that she attended the 2^nd defendant’s office on 7 July 2006 at about 12.48 pm during her lunch break to attend an appointment with Paul Man that she had made.  She wished to sell her property by public auction.  She was received by Mr Danny Wong (“Wong”) as Paul Man was out of the office then.  Wong gave her a blank form of an agreement for sale of properties in Hong Kong.

29. The 1^st defendant filled in the particulars and when Paul Man returned to the office she gave the form which she had filled in to him.  He went out and came back with a printed form of the agreement (“the agreement”) with the particulars filled in.  This was in duplicate.  He went over the form with the 1^st defendant.  He told her that according to a valuation from Hong Kong Bank the property was valued at $1.88 m and he asked her to accept this as the reserve price for the auction.  This was disputed by Paul Man who said that he did not give her any advice as to the value of the property or the reserve price.  However, in cross-examination he said that he did not remember if he had referred to a Hong Kong Bank valuation of the property at the meeting.

30. I prefer the evidence of the 1^st defendant and find that Paul Man did advise her that according to the Hong Kong Bank valuation the property was valued at $1.88 m and that he asked her to accept the reserve price of $1.88 m.  That was the figure written down in cl. 5 of the agreement as representing the sale price.

31. As the 1^st defendant said, and as I accept and find, she told him that she would not accept a price less than $1.98 m.  She also gave him a cheque for the auction fee of $2,500.

32. The 1^st defendant said that she saw Paul Man writing some words on the printed form in duplicate.  After that he showed her the form and she signed on the spaces indicated.  She was given one copy of the signed form and the 2^nd defendant kept the other copy.

33. The 1^st defendant said that she discovered that there were two mistakes in the printed form.  The first was that only one auction date was inserted whereas the 2^nd defendant had agreed to conduct two auctions.  The other mistake was that the sum of $1.88 m was written as the sale price at cl. 5 and not the sum of $1.98 m which she had mentioned to him.  She returned her copy of the agreement to Paul Man and asked him to correct the two mistakes.  He wrote some words in the two copies of the form and returned one to her.  She noticed that he only added a date “8 Aug., 2006” in cl. 2 as the 2^nd auction date but that he did not correct the figure of $1.88 m to $1.98 m as the sale price as she had requested.  She therefore corrected the figure from $1.88 m to $1.98 m in her own copy of the agreement and initialled besides the amendment in front of Paul Man.  She also asked him to give his copy of the agreement to her for her to make the same amendments there.  However, he told her that it was not necessary and that he would get his secretary to retype page 2 of the agreement according to her amendments.  However, he went out and when he came back he said that his secretary was out for lunch.  He also said that the printer was out of paper and that he would send her the corrected copy later on.  This was, however, never supplied and the 1^st defendant did not herself press for this as she had forgotten about the matter later on.

34. Paul Man denied that the 1^st defendant wished to sell the property for $1.98 m.  He maintained that the sale price was as set out in the copy agreement retained by the 2^nd defendant i.e. $1.88 m.

35. A copy of the agreement which was given to the 1^st defendant is at pages 205-1 to 205-5 of the trial bundle.  The 2^nd defendant’s copy of the agreement is at pages 135 to 139 of the trial bundle.

36. On this dispute of fact, I have no hesitation in accepting the evidence of the 1^st defendant and rejecting the evidence of Paul Man.  Paul Man also said in cross-examination that he did not remember whether the 1^st defendant told him that she would not accept anything less than $1.98 m as the sale price.  However, later on in his evidence he said that the 1^st defendant did not give instructions to sell the property at $1.98 m.  He was an evasive witness who also contradicted his own evidence.  I do not believe him.  Where his evidence is at variance with the evidence of the 1^st defendant I much prefer her evidence to his.

37. I find that the 1^st defendant did fix the sale price at $1.98 m and not $1.88 m as the 2^nd defendant contends.  The sale price is what Paul Man said was the reserve price.  Although Tsang was not prepared to agree that the sale price was in fact the reserve price, he did say in evidence that the 2^nd defendant was not authorised to sell the property at a price less than the figure at cl. 5.  I do not think there can be any real dispute that the sale price was the lowest price that the vendor would accept and that was in fact the reserve price fixed by the 1^st defendant as vendor.  I find that the reserve price which is the same as the sale price in cl. 5 of the agreement was $1.98 m and not $1.88 m.

38. I would also observe that in the witness statement of Tsang which was made in the Chinese language on 1 April 2008 he gave the clear impression that it was he who met and spoke to the 1^st defendant at the 2^nd defendant’s office on 7 July 2006.  In his witness statement he did not mention that it was in fact Paul Man who had spoken and dealt with the 1^st defendant at the 2^nd defendant’s office on 7 July 2006.

39. In his supplemental witness statement made on 30 September 2008 Tsang apologized for the error as regards paragraph 11 of his witness statement and wanted to clarify that it was Paul Man and not he himself who explained matters to the 1^st defendant.  He said that the error was caused by his oversight but I do not accept his explanation.  He was unable to explain why at paragraph 21 of his witness statement he said that he “recalled that the 1^st defendant had responded by telling me that she understood her responsibilities……….”.  He was clearly saying in his witness statement that he himself recalled the conversation that he had had with the 1^st defendant on 7 July 2006.  This was clearly untrue.  What was presented to the Court by Tsang’s witness statement was a false account until the matter was corrected by Tsang’s supplemental witness statement and the witness statement of Paul Man which were both made on 30 September 2008.  In my view the credibility of Tsang has been undermined by his presenting a false account in his original witness statement which was in the Chinese language even though this was corrected by his subsequent supplemental witness statement.

40. The 1^st defendant gave evidence, which I accept and find, that after the meeting on 7 July 2006 she herself advertised the property for sale at $1.98 m.

41. I also accept her evidence and find that she did deliver the letter dated 10 July 2006 (exhibit D1) by hand to the 2^nd defendant’s office on that day.  I also accept and find that the 2^nd defendant acknowledged receipt of that letter by putting the 2^nd defendant’s chop on the copy retained by the 1^st defendant which is exhibit D1.  This letter makes it plain that the 1^st defendant had also advertised the property in a newspaper and that as she wrote:

“……….I would not accept any offer under HK$1.98 m as agreed and confirmed by the agreement dated 7^th July 2006.”

42. Exhibit D1 as well as the subsequent letters from the 1^st defendant to the 2^nd defendant clearly show that all along the 1^st defendant wished to sell the property at the auction for $1.98 m and nothing less than that would be acceptable to her.

43. I also find that on 17 July 2006 she delivered the letter exhibit D2 dated 17 July 2006 to the 2^nd defendant.  She was there complaining that the property had not been advertised or marketed by the 2^nd defendant.  She also enclosed a copy of a newspaper advertisement that she had placed on 15 and 16July 2006 and again re-iterated that she would not accept any offer under $1.98 m “as per the agreement ……”.

44. On 22 July 2006 the 2^nd defendant advertised the property for sale at $1.58 m in a newspaper.  The 1^st defendant said that when she saw the advertisement she was extremely angry that the 2^nd defendant had not acted according to her instructions.  She therefore sent the letter dated 22 July 2006 exhibit D3.  In the said letter she repeated that she would not accept any offer under $1.98 m for the property.  I accept her evidence.

45. The 1^st defendant also said that on 29 July 2006 she noticed another advertisement on that day placed by the 2^nd defendant again advertising the property for sale at $1.58 m.  She was extremely angry that the 2^nd defendant was still advertising the property at $1.58 m.  This led her to write and to deliver the letter dated 29 July 2006 which she said and which I accept and find that she delivered by hand to the 2^nd defendant’s office before lunch on that day.  I also find that receipt of that letter was acknowledged by the staff of the 2^nd defendant chopping the copy of the letter which is exhibit D4 with the 2^nd defendant’s chop.  In the said letter the 1^st defendant said, inter alia,

“You are hereby being terminated as my exclusive agent and have no instructions to act for me from today’s date.  All your instructions in related (sic) to my property are totally withdrawn immediately.  Due to your professional negligence and in breach of trust, you are no longer my agent anymore.  You have no authority to sell my property by any means from today’s date.”

46. I find that this was a clear revocation of authority of the 2^nd defendant to sell the property at the auction as from the receipt of the letter on 29 July 2006.

47. After receipt of exhibit D4 the 1^st defendant gave evidence that Wong called her around lunch time saying that the 2^nd defendant had received her letter.  He also told her that they had a potential buyer by private sale for the property at $1.98 m which had come from another agent.  He asked her to send another letter to confirm that she would sell the property at $1.98 m.  After her conversation with Wong she said that she sent a letter by post which is at page 168 of the trial bundle.  Her evidence, contrary to Tsang’s evidence, is that the envelope with the postmark dated 1 August 2006 at the bottom of page 168 of the trial bundle is not the envelope used for sending the letter at page 168.  I prefer the evidence of the 1^st defendant to Tsang also on this dispute of fact.  Tsang’s evidence on this is hearsay as he relied on what his secretary had told him and I do not place any weight on this hearsay evidence.  I believe the 1^st defendant and accept her evidence.

48. By the letter at page 168 of the trial bundle she gave instructions to the 2^nd defendant

“to deal with the property with other agent offering in the sum of HK$1.98 m and the bottom price will be HK$1.98 m.

I will not accept any sum below than HK$1.98 m.”

49. This was, as the 1^st defendant said and as I accept and find, sent in response to Wong’s request in the afternoon of 29 July 2006 for the property to be sold for $1.98 m by private sale through another agent.  However, she did not accept this offer as she was asked to pay the other agent’s fee as well which she was not prepared to do.

50. Tsang denied that there was any offer to sell the property by way of private sale through another agent at $1.98 m.  However, Tsang was not the one who spoke to the 1^st defendant.  It was Wong.  Despite still being employed by the 2^nd defendant Wong has not been asked to provide a witness statement.  He has not been called to give evidence.  Tsang said that he was told by Wong that he did not have any conversation with the 2^nd defendant.  Tsang’s evidence on this is hearsay.

51. The considerations relevant to the weighing of hearsay evidence is set out in s. 49 of the Evidence Ordinance Cap 8. which provides :

“   (1)     In estimating the weight, if any, to be given to hearsay evidence in civil proceedings the court shall have regard to any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence.

       (2)  For the purposes of subsection (1), regard may be had, in particular, to the following─

(a)  whether it would have been reasonable and practicable for the party by whom the evidence was adduced to have produced the maker of the original statement as a witness;

(b)  whether the original statement was made contemporaneously with the occurrence or existence of the matters stated;

(c)  whether the evidence involves multiple hearsay;

(d)  whether any person involved had any motive to conceal or misrepresent matters;

(e)  whether the original statement was an edited account, or was made in collaboration with another or for a particular purpose;

(f)    whether the circumstances in which the evidence is adduced as hearsay are such as to suggest an attempt to prevent proper evaluation of its weight;

(g)  whether or not the evidence adduced by the party is consistent with any evidence previously adduced by the party.”

52. It seems to me that as Wong is still employed by the 2^nd defendant it would have been reasonable and practicable for the 2^nd defendant as the party by whom the hearsay evidence was adduced to have produced the maker of the original statement as a witness.  It also seems to me that the 2^nd defendant has a motive to conceal or misrepresent matters.  I place no weight on the hearsay evidence of Tsang that Wong did not have any telephone conversations with the 1^st defendant.

53. I would also observe that the 2^nd defendant has failed to provide a satisfactory explanation for not calling Wong as a witness.  He is still employed by the 2^nd defendant and he has been mentioned as the person to whom the 1^st defendant spoke both before and after the auction.  In my view an adverse inference can and should be drawn against the 2^nd defendant that if Wong had been called to give evidence his evidence would not have supported the 2^nd defendant’s case (see the observations of Le Pichon JA in Li Sau Keung v Maxcredit Engineering Ltd & Another [2004] 1 HKC 434 at 443-444).

54. The 1^st defendant also gave evidence which I accept that on 31 July 2006, on the day of the auction, she noticed another advertisement for the property put up by the 2^nd defendant advertising the property at $1.58 m.  Not surprisingly, she was angry at seeing the advertisement and delivered the letter dated 31 July 2006 by hand marked for the attention of Tsang as she understood from the advertisement that Tsang was the auctioneer.  She arrived at the 2^nd defendant’s office at about 12.40 pm and a male staff came out to collect the letter.  He chopped the copy which is exhibit D5 to acknowledge receipt of the letter.  She told him that the letter was urgent and for the attention of Tsang.  The male staff told her that Tsang was their boss and he would pass the letter to him immediately.  She then left the 2^nd defendant’s office.  I believe the 1^st defendant and accept her evidence.

55. The letter exhibit D5 made it plain that the authority of the 2^nd defendant to sell the property had been revoked.  The letter stated, inter alia,

“You have no authority to put up my property for sell today, i.e. this afternoon and I reserve all rights to claim for all my loss and/or compensation due to your professional negligence.”

56. On the evidence, which I have accepted, I am satisfied and find that the authority of the 2^nd defendant to sell the property at the auction was actually revoked by the 1^st defendant prior to the auction which was held at 3 pm on 31 July 2006.  I find that the 2^nd defendant had no authority to sell the property at the auction.

57. On the undisputed evidence of the 1^st plaintiff I find that she, on behalf of herself and her son the 2^nd plaintiff, was the successful bidder at the auction on 31 July 2006 conducted by the 2^nd defendant when her bid of $1.88 m was accepted by the fall of the hammer of Tsang.

Issue (1)

58. As I have said, the crucial question under Issue (1) is whether prior to the auction the 1^st defendant actually revoked the authority of the 2^nd defendant to sell the property at the auction.  The crucial question has been resolved in favour of the 1^st defendant.  The answer to Issue (1) is that the 1^st defendant is not bound by the contract of sale of the property concluded at the auction on 31 July 2006 and the 1^st defendant is not liable to the plaintiffs for failing to complete the sale on 30 August 2006.  In my judgment the plaintiffs’ claim against the 1^st defendant fails. 

Issue (2)

59. Issue (2) is resolved in favour of the plaintiffs.  The 2^nd defendant is liable to the plaintiffs for breach of warranty of authority to sell the property at the auction.  The plaintiffs’ claim against the 2^nd defendant for damages for breach of warranty of authority succeeds. 

Conclusion

60. In view of my findings on Issues (1) and (2), Issues (3) and (4) do not arise. 

61. I give judgment to the plaintiff against the 2^nd defendant for damages for breach of warranty of authority such damages to be assessed by a master.  I dismiss the plaintiffs’ claim against the 1^st defendant.

62. The 1^st defendant also succeeds in her counterclaim against the plaintiffs.  I also give judgment to the 1^st defendant against the plaintiff for the relief claimed in prayers (1) and (2) of her amended counterclaim namely :

(1)     a declaration that there was no binding contract between the plaintiffs and the 1^st defendant in relation to the property; and

(2)     an order vacating the registration of the lis pendens of the sealed copy of the amended writ of summons by memorial number 06110801720215 forthwith.

63. The 1^st defendant’s and the 2^nd defendant’s claims for indemnity against each other are dismissed.

Costs

64. As regards the costs of the successful defendant the 1^st defendant, Mr Cheung, for the plaintiffs, submitted that the Court should make a Sanderson order (taken from Sanderson v Blyth Theatre Company [1903] 2 KB 533) whereas Mr Leung, for the 1^st defendant, submitted that the Court should make a Bullock order (taken from Bullock v The London General Omnibus Company and others [1907] 1 KB 264).

65. At paragraph 9-072 and footnote 4 of Bowstead and Reynold’s on Agency 18^th Edn. it is stated that in a case where the authority of the agent is disputed by the person on whose behalf the contract is made, the person who made the contract may be joined with him as co-defendant and relief claimed against them alternatively.  In such a case, the court would in the exercise of its discretion normally order the unsuccessful defendant to pay the successful defendant’s costs by making either a Bullock order or a Sanderson order.

66. The matter is ultimately in the discretion of the Court.

67. A Bullock order is inappropriate where a plaintiff is alleging perfectly independent causes of action against two defendants where the breaches of duty alleged are in no way connected the one with the other.  But where the causes of action relied on against the defendants rested on precisely the same complaint, it would be going too far to say that the causes of action are in no way unconnected (62/3/9 Hong Kong Civil Procedure 2009; Sanfield Building Contractors Ltd v Li Kai Cheong [2003] 3 HKLRD 48).

68. It seems to me that the claim of the plaintiffs against the 1^st defendant and the alternative claim of the plaintiffs against the 2^nd defendant are founded on the same complaint namely, the 1^st defendant’s failure to sign the Memorandum and to complete the sale on 30 August 2006.  It would be going too far to say that the causes of action are in no way unconnected.

69. In the exercise of my discretion it would be appropriate to make a Bullock order.

70. I also make orders nisi for costs as follows:

(1)     that the 2^nd defendant do pay the plaintiffs’ costs to be taxed, such costs to include all costs incurred by reason of there being two defendants and further all costs that the plaintiffs may have to pay the 1^st defendant;

(2)     that the plaintiffs do pay the 1^st defendant her costs of the action and the counterclaim to be taxed.