Sunny Square Ltd. v. Artsland Properties Investment Ltd. and Another

CACV000035A/1999

CACV 34 & 35/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 34 & 35 OF 1999

(ON APPEAL FROM HCA 9897 AND 10428 OF 1998)

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Coram : Godfrey, Mayo & Leong, JJ.A.

Date of Hearing : 20 May 1999

Date of Judgment : 4 June 1999

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. On 23 December 1998, Yam J. struck out the statements of claim in two actions brought by Sunny Square Limited ("the purchaser") against (1) Artsland Properties Limited ("the vendor"), a company in the Sun Hung Kai group of companies; (2) Sun Hung Kai Real Estate Agency Limited ("the sales agent"), another company in the group; and (3) Jones Lang Wootton ("the estate agent"), an independent firm. These actions arose out of the purchase by the purchaser of two flats in Royal Court, 3 Kennedy Road, Hong Kong. The first action concerned 22B; the second, 18A. The purchaser, having contracted to buy these two flats, has purported to rescind both contracts. It complains of misrepresentations, on the basis of which it says it was induced to contract, made to it by the sales agent and the estate agent (against whom, as well as against the vendor, it seeks relief). The judge held that the case of the purchaser based on the alleged misrepresentations was a myth, which had no solid foundation, and consisted of a tissue of improbabilities which ought not to be sent to proof. The purchaser now appeals, asserting that there is sufficient substance in its case to warrant that case being allowed to go for trial, and that the judge was wrong to strike out its claims. We have to decide whether the judge was, or was not, entitled to do so.

Background

2. It is convenient to start the story in 1949, when the land on which Royal Court now stands was vested in the Zetland Hall Trustees (a body corporate) by an Ordinance (No. 20 of 1949) in pursuance of which the land was expressed to be assigned to the Zetland Hall Trustees by an assignment dated 19 May 1951.

3. By a statutory declaration made on 12 January 1988, the makers of this statutory declaration (three of the Zetland Hall Trustees) declared that this assignment had been lost and could not be found. They exhibited a copy of the assignment to their declaration.

4. In 1998, the sales agent, in marketing flats in Royal Court for the vendor, put out a sales pamphlet, including a price list for the flats, which described both 22B and 18A as being units with a "net usable area" (an expression which was not defined) of 1,157 square feet. The purchaser, by a director one Sunny Yam Wing Yin ("Mr. Yam"), who was experienced in property transactions, expressed interest in both these flats. It is sufficient to relate what transpired in relation to 22B, as to which Mr. Yam was invited to sign a form of memorandum of sale, an attachment I to which contained an acknowledgement by the purchaser thereunder that the 19 May 1951 assignment was lost; that the vendor would not be required to produce either the original or a certified copy of it; and that the purchaser would accept the copy exhibited to the statutory declaration of 12 January 1988 as sufficient proof of the contents thereof. The memorandum provided for the signature by the purchaser of a formal sale and purchase agreement. It also contained an agreement on the part of the purchaser that "the Agreement shall strictly follow the form of the Agreement for Sale and Purchase annexed hereto" and an acknowledgement by the purchaser "that he has perused the same and understands the contents and legal effect thereof before signing the Memorandum for Sale." In fact, no form of Agreement for Sale and Purchase was attached to the Memorandum. The Memorandum referred to the "Saleable Area" of the flat (again an expression which was not defined) as being 1,157 square feet.

5. On 18 February 1998, Mr. Yam signed the Memorandum for Sale as it stood (his request to endorse the attachment I "subject to my lawyers' approval" was rejected). The purchaser's case is that Mr. Yam did so on the faith of representations made to him by a salesperson to the effect (1) that the title was good and marketable; (2) that the absence of the 19 May 1951 assignment had been remedied by a "court declaration"; (3) that the attachment to the Memorandum for Sale was redundant and of no legal effect and would not affect title; (4) that the prices mentioned in the sales pamphlet would not be reduced; (5) that the "net usable area" mentioned (not by the salesperson but in the sales pamphlet) was equivalent to the internal floor area and that accordingly the latter was an area of 1,157 square feet, whereas in fact it was only 984 square feet.

6. On 20 February 1998, the vendor's solicitors, Winston Chu & Co., sent to the purchaser's then solicitors, Ip Kwan & Co., a draft Agreement for Sale and Purchase. This referred to "the saleable area" of the flat as 107.49 square metres (it is common ground that this may be taken, for present purposes, as being as near as may be to 1,157 square feet). The expression "saleable area" was comprehensively defined in the draft (the details of this definition are immaterial).

7. The draft contained the following clauses 12(a) and (b) and 28 :

"12.(a) Subject to Sub-Clauses (b), (c) and (d) hereof, the Vendor shall at his own expense show and give a good title to the Property in accordance with Section 13 of the Conveyancing and Property Ordinance Chapter 219 of the Laws of Hong Kong and produce to the Purchaser for his perusal such original or certified copies of any deeds or documents of title, wills and matters of public record as may be necessary to complete such title. The costs of verifying the title, including search fees, shall be borne by the Purchaser who shall also, if he requires certified copies of any documents in the Vendor's possession relating to other property retained by the Vendor as well as to the Property, pay the cost of such certified copies.

(b) The Purchaser hereby acknowledges that the Assignment dated 19th May 1951 by The Hongkong and Shanghai Bank Hongkong (Trustee) Limited and Emma Raymond to The Zetland Hall Trustees in respect of Inland Lot No. 1875 (copy whereof is exhibited to a Statutory Declaration dated 12th January 1988) was lost. The Purchaser hereby expressly agrees that, notwithstanding anything contained in this Agreement and despite Section 13 of the Conveyancing and Property Ordinance, the Vendor shall not be required to produce the original or a certified copy of the said Assignment to prove the Vendor's title and the Purchaser shall accept a copy of the said Assignment exhibited to the said Statutory Declaration as sufficient proof of the contents thereof.

28.(a) This Agreement contains the whole and the only agreement between the parties regarding the subject matter of this Agreement and supersedes and extinguishes any prior drafts, agreements, understandings, undertakings, representations, warranties or arrangements or any nature whatsoever between them, whether oral or in writing.

(b) Each party acknowledges that in entering into this Agreement on the terms set out in this Agreement it is not relying upon any representation, warranty, promise or assurance made or given by any other party or any other person, whether or not in writing, at any time prior to the execution of this agreement which is not expressly set out herein."

8. On 23 February 1998, the purchaser's solicitors returned the draft to the vendor's solicitors, proposing certain amendments, including an amendment to clause 12(b) which would have inserted the following introductory words :

"Subject to the representations by the Vendor to the Purchaser made at the time of signing the Memorandum of Sale on 19th February 1998 that the Vendor will use its best endeavours to verify the title defects herein and to procure a declaration from a court of Hong Kong with competent jurisdiction that such title defects will not affect the title of the Property and that such declaration will be obtained within a reasonable period of time, the ....."

9. On 28 February 1998, Mr. Yam signed the Agreement for Sale and Purchase. It did not contain the amendment to clause 12(b) which the purchaser's solicitors had put forward. It contained clauses 12(a) and (b) and clause 28 as set out above.

(After it was too late, on 2 March 1998, the purchaser's solicitors raised a number of requisitions including the following :

"7. In respect of the Assignment dated 19th May 1951 from the Hong Kong and Shanghai Bank Hong Kong (Trustees) Ltd and Emma Raymond to The Zetland Hall Trustees, we note that the same has not even been registered at the Land Office. The production of the Statutory Declaration dated 12th January 1988 is not sufficient for the purpose of section 13 of Conveyancing and Property Ordinance. We are instructed that the provision as set out in the Attachment I to the Memorandum of Sale on 18th February 1998 has never been explained to our client when he executed the Memorandum for Sale. We are instructed that our client did not understand the legal implication of the attachment I and he had on the contrary been assured that rectification work (including making an Application to Court for a Declaration) would be made by your client to make good the defect in title. Such has been reflected in the amendments made by us to your draft Sale and Purchase Agreement. We are further instructed to give you notice that our client does not consent to the insertion of clause 12(b) of the draft Sale and Purchase Agreement and therefore, your client should delete the clause from the agreement when they execute it.")

10. Mr. Yam subsequently attempted thereafter to negotiate with the vendor an arrangement under which the purchaser would complete its contract to purchase one of the flats if it were allowed to withdraw from its contract to purchase the other; but he did not succeed in achieving this objective.

11. On 25 March 1998, the purchaser gave notice to the vendor, under a provision in that behalf contained in the Agreement for Sale and Purchase, to postpone completion of the transaction until 24 August 1998.

12. On 28 April 1998, the purchaser accepted a licence to go into possession.

13. On 4 May 1998, the purchaser wrote to Mr. Thomas Kwok, of Sung Hung Kai Properties Ltd. as follows :

"Re: 18A & 22B of Royal Court, No. 3 Kennedy Road

My name is Sunny Yam. I am the founder and Chairman of Sheraton Valuers Ltd. I am a good friend of Mr. Hugo Chan and I am also a member of the same church of Hugo. You may recall Hugo visited you at your office in March this year to put forward my proposal to seek your approval for cancelling the agreement of sale and purchase of one of the captioned properties at your choice and proceeding completion of sale and purchase of the remainder.

I think there is no need and I do not want to repeat the details of misconduct of the agent of Royal Court, Jones Lang and Wootton in which Hugo has conveyed to you. I have been advised by my solicitors that I have good grounds to rescind the two provisional Agreements for Sale and Purchase. However, for reasons I have not had the intention to litigate with Sun Hung Kai which Sheraton Valuers Ltd has good business relationship and my belief the matter should be resolved amicably in a Christian spirit. Hence, I have not taken legal action to rescind the Provisional Agreement. Nevertheless, there remains my worry of the future transactions of Royal Court which cannot be done in an ordinary way and a special caveat has to be attached to future provisional agreement for sale and purchase relating to the lost Assignment. No layman will understand the delicate point of law of the caveat and will not sign the provisional agreement for sale and purchase unless tricks of the kind by Jones Lang & Wootton are repeated. No solicitor will advise a client to accept the caveat until the solicitor has purued the title deeds and documents. One can appreciate the unusual feature of future transactions and the delay which naturally follows. The insertion of this caveat to provisional agreement for sale and purchase is both advised by your solicitors, Mr. Winston Chu & Co. and my solicitor, Johnston Stokes & Master.

With good will of having an amicable solution with Sun Hung Kai and avoiding adverse publicity coupled with the belief of Christianity you and I are convicted, few days before signing the formal sale and purchase agreements, I phoned your General Manager, Mr. Victor Lui proposing to cancel the Provisional Agreement of one property at your choice and proceeding with the other. I will bear the stamp duty of the cancelled transaction. At the same time, I requested Hugo to submit my proposal to you. This prompt civilized action manifests genuine and amicable intention on my part to sole my predicament.

Brother Thomas, please be advised that to act as business like as a businessman, I should start legal action but I do not because I believe in proverbs 10:12 of the Holy Bible 'Hatred stirs up dissension, but love covers over all wrongs'.

I have phoned your secretary, Priscilla, to ask for a 15 minutes meeting with you. You are too busy even to ask Priscilla to make a reply to me. I am not disappointed because ultimately there is no need for ink and paper, we will have plenty of time to talk face to face in future.

Brother Thomas, I am aggrieved by the unfairness of these transactions. You are a righteous Christian of highest integrity and perfect model to follow brothers and sisters. I wish you allow the proposal to cancel the completion of sale and purchase of one property at your choice and proceeding with the other and I will have no hesitation to donate part of the refund in the sum of HK$30,000,000.00 to Hugo's church for God's work. Alternatively, you may consider a reduction of my purchase prices to your present sale prices like other ethical esteem developers such as Cheong Kong and Overseas China when they sell at prices lower than previous sales.

I wish to end this letter by quoting proverbs 2: '... turning your ear to wisdom and applying your heart to understanding ... for he guards the course of the just and protects the way of his faithful ones. Then you will understand what is right and just and fair - every good path ..."

I look forward to your just reply.

God bless you!

Yours humble little brother"

14. On 6 May 1998, the purchaser's new solicitors, Johnson Stokes & Master, wrote to the vendor's solicitors as follows :

"Re : Flat A on 18th floor and Flat B on 22nd Floor of Royal Court 3 Kennedy Road, Hong Kong ("the Properties")

We refer to the captioned matter.

To our client's surprise, your client has, through Midland Realty and Jones Lang Wootton, offered to sell to the public the remaining unsold units of Royal Court at a much lower price per square feet than what our client has agreed to pay for the purchase of the Properties in February 1998. We are, therefore, instructed by our client to seek your client's confirmation as to whether your client would agree to adjust down the purchase price payable by our client in respect of the purchase of the said Properties so as to make the same in line with your client's latest offer to the public. Our client believe that your client would consider our client's appeal and an amicable solution could finally be reached."

15. While the purchaser, and its solicitors, were trying to re-open the whole matter, as indicated in their letters of 4 May 1998 and 6 May 1998 respectively reproduced above, the purchaser caused an advertisement for sale of the two flats to be inserted in the Hong Kong Economic Daily which (in the English translation) reads as follows :

"SUN HUNG KAI REDUCE PRICE IN A SUDDEN, FORCED TO SELL AT A LOSS MONEY WANTED RATHER THAN THE PROPERTY, FORCED TO REDUCE PRICE FURTHER

ROYAL COURT No.3 Kennedy Road

Hotel style management, facing and enjoy the full view of the Hong Kong Zoological & Botanical Garden and the former Governor's House and the seaview

SOLD BY THE OWNER AT A LOSS OF $2,300,000 (not including stamp duty)

1,428 square feet

18A	Purchase Price subject to tenancy $14,860,000
	(monthly rent $69,000)
	NOW SELLING AT $13,760,000 (loss $1,100,000)
22B	Purchase Price with vacant possession $15,550,000
	NOW SELLING AT $14,350,000 (loss $1,200,000)

Selling at a first come first serve basis, with keys, no commission payable

Payment Method : 10% deposit, balance payable within two months

Please call within office hours : 2526-0267 or call 90187672 Mr. Wong, 94872499 Mr. Tang for negotiation.

Remark : As the Developer could not furnish one original Assignment of No. 3 Kennedy Road, the purchaser shall accept (Zetland Hall Trustees Incorporation (Amendment) Ordinance 1949 ("the Ordinance")) which has been registered with the Land Registry as root of the title and the Vendor shall only be required to furnish the purchaser with the certified true copy of the Ordinance in place of (his obligation under) Section 13 of the Conveyancing and Property Ordinance (Cap. 219). The purchaser shall not use it as an excuse to refuse to complete (due to defective title).

VENDOR : SUNNY SQUARE LIMITED"

16. On 29 May 1998, all this having come to nothing, the purchaser parted company with Johnson Stokes & Master, again instructing new solicitors, Hui & Lam, to write to the vendor's solicitors as follows :

"Re : Property : Suite 22B of Royal Court, 3 Kennedy Road Mid-levels, Hong Kong

Purchaser : Sunny Square Limited

NOTICE OF RESCISSION

We act for Sunny Square Limited, the Purchaser of the Property in place of its former solicitors, Messrs. Johnston, Stokes & Master, solicitors.

We appreciate that your firm is acting for Artsland Properties Investment Limited ("the Vendor") in respect of the sale and purchase of the Property.

We are instructed that a Memorandum for Sale dated 18 February 1998 ("the Memorandum"), which was followed by a subsequent Sale and Purchase Agreement dated 28 February 1998, was made between our client and the Vendor in respect of the Property.

We are further instructed that, on 18 February 1998, in order to induce our client to enter into the Memorandum, your client through its agents, Sun Hung Kai Real Estate Agency and Jones Lang Wootton ("the agents") had, prior to and/or at the time of signing the same, misrepresented to our client :-

(a) that the selling prices, including our client's purchase price, appeared on a price list that prepared and/or set by your client and showed to our client were at a favourable value in the sense that any subsequent released price list would contain much high selling prices;

(b) that the title of the Property was perfectly good and marketable, notwithstanding the fact that an Assignment dated 19 May 1951, a title document, was missing;

(c) that the missing of the aforementioned Assignment had been remedied by a Court Declaration;

(d) that the Attachment I of the Memorandum was redundant and of no legal effect which would not affect the title of the Property in any event; and

(e) that the net area of the Property was 1,157 square feet plus bay window of 32 square feet.

All the aforesaid matters are subsequently proved to be untrue or false. In the premises, we are of the view that our client has been unfairly and/or prejudicially induced to enter into the transaction in question.

Furthermore, we are instructed that our client would at no time agree to purchase the Property in any event but for the aforesaid actionable misrepresentation. We are also given to understand that our client's request to seek for legal advice and/or to insert a remark 'subject to my lawyer's approval' into Attachment I of the Memorandum at the time of signing the Memorandum was unfairly refused by the Vendor through its agents.

We are further given to understand no Agreement for Sale and Purchase was annexed to the Memorandum as alleged in Rider 3of the Memorandum nor our client was ever given a view of the same notwithstanding our client's request. Thus our client's right of subsequent independent and effective legal representation was unfairly deprived by the Vendor through its agents.

In the circumstances, notice is now hereby given that our client is exercising its right of rescission and considers the Memorandum and any subsequent agreement as no longer binding on our client and that nothing herein shall be construed as to waive our client's right to sue your client for damages for misrepresentation.

.........."

17. On 2 June 1999, the purchaser received a report from Wayfoong Property Limited, Valuation Department, which confirmed a "saleable area" for 22B of 1,126 square feet, plus bay window area of approximately 32 square feet and a flower box area of approximately 10 square feet (a total area of 1,169 square feet). It also confirmed an "internal floor area" (in respect of which, the report said, there was "no conscientious definition", whatever that means) of approximately 984 square feet.

18. On 17 June 1999, the purchaser instituted the proceedings with which we are now concerned, claiming rescission, the return of its deposits, damages, interest and costs against the vendor, with alternative claims for damages for breach of warranty of authority against the sales agent and the estate agent.

The law

19. It was common ground before us that each action here ought to be struck out only if it is perfectly clear that it is bound to fail. If not, it ought to be allowed to continue. It is on this basis (different from that adopted by the judge) that it is convenient to deal with the case.

Is the purchaser's action bound to fail?

20. The purchaser relies, as we have seen, on a number of "representations" which for present purposes it may be accepted were made to Mr. Yam before he signed the Memorandum of Sale on 18 February 1998. But on 28 February 1998, Mr. Yam signed the Agreement for Sale and Purchase, including clause 28. In my judgment, it is perfectly clear that clause 28 debars the purchaser from relying on any of the alleged "representations". The whole purpose of a clause such as clause 28 is to prevent purchasers from taking such points as are now taken by the purchaser here. A purchaser who wants to be able to rely on estate agents' "puff" should either (1) refuse to enter into a contract containing a clause such as clause 28 or (2) insist that the "representation" on which he wants to rely is written into the contract. (Indeed, the purchaser in our case attempted to do this in relation to the "representation" about the "court declaration" to be obtained as to the missing assignment of 12 May 1951; but it entered into the contract even though its attempt was rejected).

21. Sir John Swaine S.C., for the purchaser, submitted that even if clause 28 would otherwise operate to defeat the purchaser's claims, its provisions were unreasonable. That would raise an issue of fact which was fit to go to trial. I reject this argument, for in my judgment it is perfectly clear that an attempt to show that clause 28 was unreasonable would itself be bound to fail. A clause in an agreement for sale and purchase designed to ensure that parties are held to their bargain as recorded in writing, far from being unreasonable, is highly desirable.

22. That is sufficient to dispose of the case; but there is yet another reason here why these actions are bound to fail.

23. It is well-settled that a party to a contract is entitled, after discovering that false representations have been made to him, to call off the contract (in lawyer's language, to claim that the contract be rescinded ab initio). But he cannot blow hot and cold. He must elect whether to affirm or rescind the contract. If by his words or conduct he elects to affirm it, he cannot go back on that election. It is perfectly clear here that the purchaser, albeit reluctantly, affirmed the contract before it attempted to rescind it. It did do by seeking to postpone completion in accordance with the contract and later by trying to sell the two flats (as it did by its advertisement in the Hong Kong Economic Daily in early May). The purchaser has no answer to this (except perhaps as to the "representation" as to the size of the flat, a "representation" which it says it did not discover was false until it was told so by Wayfoong Property Limited at the end of May).

24. Lastly, I would add that the purchaser's grievances about the alleged "representations" even if (as I assume) they are genuine, are quite groundless. The problem of the missing assignment of 12 May 1951 was resolved, perfectly satisfactorily, by the 1988 Statutory Declaration; there is no justification whatever for the purchaser's belief that the title is otherwise than perfectly "good and marketable"; a piece of "puff" by a salesperson that a vendor will not reduce its prices is not a "representation", in the legal sense, at all; and there has never been any real question but that "the saleable area" of the flats as defined in the contract was 1,157 square feet, whatever figure might be thrown up by some other undefined and uncontractual calculation of that area.

Conclusion

25. There is no substance in the purchaser's case. It is bound to fail. The judge was right to strike out the purchaser's claims. I would dismiss this appeal.

Mayo, J.A. :

26. I agree. There is nothing I can usefully add.

Leong, J.A. :

27. For the reasons given by Godfrey, J.A., I agree that the appeal should be dismissed.

Godfrey, J.A. :

28. The appeal is accordingly dismissed. As to costs, we will order that the costs of the 1st defendant and the 2nd defendant, and the costs of the 3rd defendant, be taxed (if not agreed) and paid by the plaintiff, unless an application is made within 14 days after the date of this judgment for some other order as to costs.

Representation:

Sir John Swaine, S.C. and Mr. Victor So (M/s. Hui & Lam) for the Plaintiff

Mr. Denis Chang, S.C. and Mr. Mok Yeuk Chi (M/s. Winston Chu & Co.) for 1st and 2nd Defendants

Mr. Rimsky K.K. Yuen (M/s. Baker & McKenzie) for 3rd Defendant