Simply Power Ltd v. Billy Chua and Others
Read the full judgment text of HCA 2452/2013 on BabelCite. This High Court CFI judgment was delivered on 14 April 2023.
1. This is the trial of the Action.
Cited by 3 cases · Cites 6 cases
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HCA 2452/2013 [2023] HKCFI 944 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2452 OF 2013 _________________
(by Original Action)
(by Counterclaim) _________________
________________ JUDGMENT ________________ (A Table of Contents is annexed to this Judgment) Introduction 1.This is the trial of the Action. 2.This Action arose out of the aborted sale and purchase of a property situated in Aberdeen Inland Lot No. 414 (“Lot”) and known as Hing Wai Ice and Cold Storage Building, No. 9 Tin Wan Praya Road, Hong Kong (“Property”) in 2013 at the price of HK$603 million.[1] 3.The Plaintiff [2] was the purchaser while the 3rd Defendant was the registered owner and vendor under (i) a provisional agreement for sale and purchase (“PASP”) and (ii) a formal agreement for sale and purchase (“FASP”). A draft of the PASP was first signed by the Plaintiff on 20 February 2013 with the purchase price stated as HK$580 million. A revised final version of the PASP with inter alia the agreed purchase price of HK$603 million was signed by the Plaintiff and the 3rd Defendant on 22 February 2013[3]. The FASP was executed by the parties on 26 March 2013. 4.The 1st Defendant (“Chua”), the 4th Defendant (“Midland”) and the 5th Defendant (“Metro”) are collectively known as the “Midland Parties”. Midland acted as estate agent in the transaction. Chua was acting as agent for Midland when dealing with Ms Li Yanan (“Ms Li”) of the Plaintiff. Chua was a licensed estate agent and was an employee of Metro at the time. 5.It was declared in Clause 18 of the PASP that Midland was the agent of both the Plaintiff as purchaser and the 3rd Defendant as vendor. Having said that, the Midland Parties deny inter alia Chua and Midland were agents for the 3rd Defendant in advertising the Property or in issuing the Proposal and Revised Proposal as defined below to the Plaintiff. 6.The 3rd Defendant also denies it (i) has appointed Chua or Midland as its agent in advertising, promoting marketing or selling the Property, (ii) has authorized any persons to make any representations regarding the permitted or suitable users of the Property as alleged by the Plaintiff, (iii) has instructed Chua or Midland to prepare the Proposal and the Revised Proposal or has been shown the same at the material time. 7.The Property was at all material times an ice-making factory and cold storage facility. Its user was at all material times subject to the restrictions contained in the Conditions of Exchange dated 21 January 1989 (“Conditions of Exchange”) and the Occupation Permit No. H95/77 dated 4 May 1977 (“OP”) [4]. Without going into the details of the relevant terms set out in the documents, it is not disputed that the Property was only suitable for ice-making and cold storage (“Restriction”). 8.Ms Li, the Plaintiff’s sole director and shareholder, mainly carried on a business specialising in GPS satellite navigation and related electronic system development and services, both in Mainland China and in Hong Kong. Ms Li also had another business in selling leisure yachts (collectively “Business”). In 2013, Ms Li said she wished to purchase an industrial building for use by the Business because her then office on 25/F and 26/F of Millennium City 3, Kwun Tong (“Millennium City Property”) of about 16,280 square feet in size was insufficient for her purpose. Hence, Ms Li instructed Chua, whom she had dealt with before, to look for an entire building for her to consider. 9.It is the Plaintiff’s case that Ms Li had made it clear to Chua that she required the Property for purposes relating to the Business. It is also the Plaintiff’s case that it was induced to purchase the Property by certain false representations, both oral and in writing, about the permitted user of the Property made by Chua, and hence Midland, and, via Midland as agent, by the 3rd Defendant. The representations were defined in the Re-Re-amended Statement of Claim (“RRASOC”) as the “Written Representation”, “Oral Representation” and “Further Representation” (collectively “Representations”). Putting it simply, the Representations were that the Property was suitable for (i) Ms Li’s business self-use and (ii) general industrial purpose. In fact, the Property was not so suitable by reason of the Restriction. 10.It is common ground that all relevant Defendants knew of the Restriction. The 3rd Defendant as the registered owner obviously and admittedly knew. As far as the Midland Parties are concerned, it is not just Chua but his superior Chau Wing Kin Stanley (“Stanley”) also knew of the Restriction. The Plaintiff is thus pitching its case as one of fraudulent misrepresentation and not just reckless or negligent misrepresentation, albeit the latter are also pleaded. Since the Plaintiff is alleging fraud, while the standard of proof is still the civil standard, the evidential burden on it has to be commensurate with the seriousness of the allegation so that more compelling and stronger evidence is required to prove its case. 11.The Plaintiff’s case is that relying on and induced by the Representations, it entered into the PASP and FASP but discovered months later that they were false. It refused to complete on the completion date of 31 October 2013 which was over 8 months from the execution of the PASP. The 3rd Defendant then forfeited a total of HK$120.6 million ie 20% of the purchase price paid by the Plaintiff as deposits in 3 tranches (“Deposits”). Midland did not receive its commission as a result of the non-completion. The Protagonists 12.The following are the parties’ factual witnesses. 13.From the Plaintiff:
14.From the Midland Parties:
15.From the 3rd Defendant:
16.As far as the 3rd Defendant’s witnesses are concerned, there is no attack by the Plaintiff on either Tang or Ms So. In fact, the Plaintiff describes Tang as a relatively forthcoming witness and Ms So as a relatively reasonable witness who gave direct answers. While the Plaintiff does accuse Lau of being evasive, dishonest etc, it can be seen from the Plaintiff’s Closing then the challenge to Lau’s testimony is on relatively minor matters eg how Clause 24 of the PASP[6] was added to the document when there is no dispute that the PASP as executed did contain the clause, or whether he agreed the 3rd Defendant put the Property on the market as soon as it had purchased it in 2007, which is not an issue in this case. As between the Plaintiff and the 3rd Defendant, credibility of their witnesses is not a hugely important issue. 17.The same cannot be said as between the Plaintiff and the Midland Parties. As quite a number of the core issues are factual ones as between them and their witnesses have given competing versions of what happened and what was said at the material events, this court should explain at the outset that its approach, as always, is to consider the testimony of the witnesses and assess it against inter alia the contemporaneous documentary evidence and the known and undisputed circumstances of this case. This court would in particular consider the inherent probabilities or otherwise of the witnesses’ testimony and assess their credibility accordingly in order to come to its findings of fact. This court would also take note of the well-established general approach on fact-finding and assessment of credibility as summarised in, for instance, Hui Cheung Fai v Daiwa Development Limited unrep, HCA 1734 of 2009, 8 April 2014, DHCJ Eugene Fung SC at [77] - [83], a case cited by both the Plaintiff and the 3rd Defendant. The approach is really all common sense but it is perhaps worth reminding oneself of the following:
18.Given the credibility of the 2 main protagonists viz Ms Li and Chua will affect the outcome of a number of the core issues in this case, it is necessary for this court to give a short profile of and its preliminary observation on the two. Reasons as to why this court prefers the testimony of one to the other on a particular core issue will come when the issue itself is examined. 19.Ms Li has a very impressive education, professional and business background. She graduated from Beijing Institute of Technology (北京理工大学) with a Bachelor Degree in Engineering in 1989. She first worked as an engineer in China Academy of Launch Vehicle Technology (航天部第一研究院) and then worked in Beijing UniStrong Science & Technology Co., Ltd. (北京合众思壮科技股份有限公司) (“UniStrong”) and was responsible for its technical support. In 2010, UniStrong became a listed company in Shenzhen in which she acted as its director and shareholder until 2013. In 2008, she acquired Eletek which later became her flagship company for the GPS satellite navigation and related electronic equipment and services business. Her other flagship company was Jet Set Marine Limited (“Jet Set”) for the yachts business. She has been in the Business for over 20 years which had grown rapidly with total number of staff worldwide at about 100. In 2013, Ms Li was only in her 40s[7]. 20.While in the box, Ms Li impressed this court as a sophisticated businessperson and a confident witness. Mr Tong SC describes her as “a calm, frank and straightforward witness” in his Closing. This court agrees Ms Li was indeed calm in court but not necessarily frank or straightforward. Two prominent examples of Ms Li being far from frank or straightforward are her testimony (i) on her dealings with Headland Developments Limited (“Headland”) in May 2013 and (ii) that after the subject transaction had fallen through, she had “no mood” to move her office out of the Millennium City Property, a place she said was most unsuitable for her business use. 21.By contrast, Chua’s education level is only up to Form 2. He has been an estate agent since 1989, first dealing with residential properties and then in 2007, he started to deal in industrial and commercial properties. 22.While in the box, Chua impressed this court as a straightforward witness. Despite rigorous cross-examination by Mr Tong SC, he remained unshaken and his answers on the main issues were consistent with his witness statement and contemporaneous documents. In Closing, the Plaintiff has launched a scathing attack on Chua accusing him of often giving convoluted answers to muddle the waters and lying blatantly under oath. As this court sees it, many of the questions put to Chua in court concerned minute details of events which were of marginal relevance to the main factual issues in this case. With respect to Chua, given his background and his job nature, this court is not surprised that he was unable to recall meticulously details of such events which happened over nine years ago or to testify in the same confident manner as Ms Li. Having observed the way Chua testified and his demeanour for more than 2 days, this court’s assessment is that the Plaintiff’s criticism of him as a blatant liar is wholly unjustified. 23.This court does not find it necessary to examine in detail the testimony of Leung or Ms Chan whose testimony stand or fall with Ms Li as they are merely supportive of Ms Li’s testimony. Stanley’s participation in the present transaction is limited and his testimony is also merely supportive of Chua. The expert witnesses 24.Apart from factual witnesses, each of the parties has also called one expert witness to testify on the so-called “customary deposit issue”. By Order dated 4 March 2021, 3 questions were posed to the experts as follows. 25.As at February 2013, being the date of the PASP, and referring to the Hong Kong property market relevant to the Property:
26.One of the main issues in this case is whether the Deposits are legally forfeitable by the 3rd Defendant. The expert evidence is intended to assist the Court in ascertaining what Mr Wong SC describes as the “starting yardstick” referred to in Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234 at [89], i.e. the reasonableness of a deposit is to be tested against the customary and conventional level of deposits generally taken as an earnest of performance. As things turn out, the experts’ answers to the 3 questions as such is of limited assistance and do not feature prominently in the parties’ Closing. Having said that, some of their testimony is still relevant and will be dealt with in the section on forfeiture of the Deposits. Material Facts 27.The following is taken largely from the Statement of Agreed Facts, supplemented where necessary with some of the undisputed or indisputable facts together with the descriptions in the Agreed Dramatis Personae. 28.For a term of 3 years from 1 September 2009 to 31 August 2012 at the rental of HK$1,200,000 per month, the 3rd Defendant let the Property to Hing Wai Ice & Cold Storage (1998) Company Limited (興偉冰廠凍房(1998)有限公司) (“Hing Wai”). 29.In February 2010, Chua and Ms Li first had a business relationship where Chua was engaged as the estate agent in Ms Li’s purchase of Units 901-904, 9th Floor, Sunbeam Centre, No. 27 Shing Yip Street, Kwun Tong (“Sunbeam Property”). On 26 February 2010, Eletek as purchaser signed the provisional agreement for sale and purchase of the Sunbeam Property. On 25 June 2010, the sale and purchase of the Sunbeam Property was completed, with Ms Li nominating Sun Royal (HK) Limited (“Sun Royal”) as the purchaser to take up the assignment. 30.On 10 September 2010, the 3rd Defendant applied to the Town Planning Board (“TPB”) for permission for the wholesale conversion of the Property from an industrial building into office use (No. A/H15/240). TPB informed the 3rd Defendant on 28 January 2011 that the application was rejected. 31.By a Licence Agreement dated 30 November 2012, the 3rd Defendant granted Hing Wai a licence to use and occupy the Property at a monthly licence fee of HK$950,000 (“Licence”). 32.Sun Royal purchased the Millennium City Property at HK$72,039,000 pursuant to a provisional sale and purchase agreement dated 31 August 2012 and a sale and purchase agreement dated 14 September 2012. The purchase was completed on 8 January 2013, with the help of another estate agent. 33.Sun Royal sold the Sunbeam Property to a third party at HK$126,000,000 pursuant to a sale and purchase agreement dated 8 August 2012. The sale was completed on 3 December 2012, with the help of another estate agent, namely, Centaline. 34.At all material times, Chua acted as agent of Midland and Midland acted as estate agent for the Plaintiff as purchaser and the 3rd Defendant as vendor in the sale and purchase of the Property by virtue of the execution of the PASP on 22 February 2013. 35.On 10 February 2013 (the first day of Chinese New Year), Ms Li messaged Chua that she was interested in purchasing a whole building with a view “to hold” the same. 36.On 14 February 2013, Chua met with Ms Li and her husband at Pacific Coffee café in the APM Shopping Centre in Kwun Tong to discuss Ms Li’s purchase intentions. 37.On 18 February 2013, Chua introduced an industrial building known as Success Centre (成功中心) located at Nos. 26-38 Ta Chuen Ping Street, Kwai Chung (“Success Centre”) to Ms Li. They then attended Success Centre with Leung for a site inspection, after which Ms Li told Chua she was interested in buying. Chua later learned that the owner of Success Centre had already entered into an agreement prohibiting acceptance of any other offer for a certain period of time. Upon being so informed by Chua, Ms Li abandoned her plan to purchase Success Centre. 38.On 19 February 2013, Chua introduced the Property to Ms Li. Chua, Ms Li and Leung attended the Property for a site inspection, which was joined by a Mr Kenneth Chan of Hing Wai. On that day, Chua gave Ms Li a copy of the written Proposal of Sale of the Property (“Proposal”). The Proposal contained the following information:
39.The Proposal also contained the following “Important Notes”:
40.Lastly, the Proposal contained the following caveat (“Caveat”) at the bottom of each page:
41.After the site inspection, Ms Li offered to buy the Property at HK$580,000,000. 42.On 20 February 2013, Chua and Stanley attended a meeting with Ms Li, Leung and allegedly Ms Chan at Ms Li’s office at the Millennium City Property to go through the terms of the draft PASP. Ms Chan signed the PASP on behalf of the Plaintiff, provided Chua with a cheque of HK$5,000,000 for the 1st deposit payment, and offered to purchase the Property. Importantly, the draft PASP already contained a handwritten Clause 24 providing that “賣⽅不保證該物業可作任何⽤途及不作出任何可轉變⽤途之承諾。買⽅不得因此⽽拒絕成交”. (Translation: “The Vendor gives no warranty that the Property may be used for any purpose, and gives no undertaking that the purpose may be changed. The Purchaser shall not refuse to complete for this reason.”) 43.On 22 February 2013:
44.The executed PASP contained the following clauses:
45.On 25 February 2013, Chua gave Ms Chan an executed copy of the PASP. 46.On 26 February 2013, Midland faxed a signed copy of the PASP to Messrs Hoosenally & Neo (“H&N”), the Plaintiff’s solicitors in the transaction. 47.On 27 February 2013, H&N requested Messrs Simon Reid-Kay & Associates (“SRK”), the 3rd Defendant’s solicitors in the transaction, to provide the title deeds and documents in respect of the Property together with the draft FASP. 48.On 8 March 2013, SRK sent to H&N a draft FASP on “subject to contract” basis. 49.On a certain date between 22 February 2013 and 26 March 2013, Chua gave the Plaintiff through Ms Chan a copy of the Revised Proposal of Sale of the Property (“Revised Proposal”). Apart from the revised asking price of HK$603m, the Revised Proposal also contained the revised usage of the Property as “Industrial or Godown purposes or both, including ice-making and processing of marine life and such other business allied to fishing industry”. Similar to the Proposal, the Revised Proposal also contained the Important Notes. 50.On 25 March 2013, H&N sent to SRK a revised draft FASP with some proposed amendments. 51.On 26 March 2013, the parties executed the FASP and the Plaintiff paid HK$55,300,000 as the 2nd Deposit to the 3rd Defendant. 52.The FASP contained the following clauses:
53.On 5 April 2013, SRK sent to H&N the counterpart of the FASP executed by Ms So on behalf of the 3rd Defendant and title deeds and documents including but not limited to the certified copies of the Conditions of Exchange and the OP. 54.On 12 April 2013, the FASP was registered at the Land Registry. 55.On 15 April 2013, H&N raised requisitions in relation to the Property with SRK. No requisition as regards the user restrictions relating to the Property was raised. On 22 April 2013, SRK answered the requisitions raised by H&N. 56.On 30 April 2013, H&N sent to SRK three cheques totalling HK$60,300,000 as the 3rd Deposit. 57.On 2 May 2013, Headland wrote to the Plaintiff and H&N and proposed a meeting to discuss possible future development of the Property. 58.On or about 15 May 2013, Ms Li and Leung attended a meeting with Headland. 59.On 16 May 2013, Ms Li and Leung had a meeting with Chua and Mr George Wong Chi Fung (“George Wong”) (surveyor of Midland) to discuss matters relating to the Property. 60.On 23 May 2013, Ms Li had a meeting with Headland to discuss lease modification and conversion of the Property. Ms Li appointed Headland to (i) apply for a waiver/no-objection letter to remove the user restrictions of the Property; (ii) conduct an outline building conditions study and review; and (iii) to prepare an investment memorandum covering project feasibility, cash flow forecast and cost plan. 61.On 23 October 2013, SRK reminded H&N of the exact amounts to be paid by the Plaintiff on completion and asked for copies of draft assignment and undertaking letter for approval. 62.On 29 October 2013, H&N informed SRK that the Plaintiff would not complete the sale and purchase of the Property on the scheduled completion date of 31 October 2013. 63.On 31 October 2013, the 3rd Defendant forfeited the Deposits. 64.On 31 October 2013, H&N wrote to Midland on behalf of the Plaintiff and Ms Li. In the letter, H&N stated that from the title deeds received on 8 April 2013 including the Conditions of Exchange and the OP, “it is clear that the usage of the Property as provided in the Proposal is incomplete and misleading.” 65.On 16 December 2013, the Plaintiff commenced the present Action. 66.As at 28 February 2022, the agreed value of the Property was HK$1,046,000,000. Further material background - 2010 to 2013 67.Between 2010 and 2013, the Hong Kong industrial property market was experiencing an upsurge in price as a result of the Government’s industrial revitalisation policy announced in October 2009. According to a CBRE[8] report dated 15 March 2018:
68.Some of the more relevant details of the revitalisation policy for industrial buildings can be found in the Chief Executive’s (“CE”) Policy addresses. 69.In the 2009-10 Policy Address, the then CE proposed a package of measures to encourage the redevelopment or conversion of industrial buildings by owners. These measures proposed to (i) lower the threshold from 90% to 80% for compulsory sale for redevelopment for industrial buildings in non-industrial areas to facilitate consolidation of ownership and (ii) exempt owners who opted for the wholesale conversion of a building instead of redevelopment from paying the waiver fee for change of land use, provided that the requirement on the age of property was met and planning permission was obtained. These proposed measures were put in place since April 2010. 70.Presenting his 2011-12 Policy Address in October 2011, the then CE reported that encouraging progress had been made and explained that the measures would be extended for another three years:
71.In January 2013, presenting his 2013 Policy Address, the then CE reported on the policy in revitalising industrial buildings as follows:
72.Ms Li accepted she had known about the said Government policy in early 2013 when she contacted Chua and said she found it very encouraging to her. Leung also admitted knowledge of such policy. 73.Further, during the short period of 2010 to 2012, Ms Li completed the purchase of the Sunbeam Property in June 2010 at HK$69,669,400 and completed its sale in December 2012 at HK$126m - handsome profit of over HK$56 million after only 2 ½ years. 74.After signing the agreement for the sale of Sunbeam Property on 8 August 2012 but before completion, Ms Li, via Sun Royal, entered into a provisional sale and purchase agreement on 31 August 2012 to purchase the Millennium City Property at HK$72.039 million. Completion of the purchase of Millennium City Property took place on 8 January 2013. 75.The relevance of these 2 transactions will be further explained later in this Judgment. The point to note is that against the backdrop of Ms Li’s success in property investment and the said government policy, on 10 February 2013, Ms Li contacted Chua for the acquisition of an entire industrial building, shortly after the completion of the sale of the Sunbeam Property in December 2012 and completion of the purchase of the Millennium City Property in January 2013. Summary of the parties’ case 76.It all started with a Whatsapp message on 10 February 2013 from Ms Li to Chua enquiring “最近還有沒有整幢物業有機會 hold 嗎?”. 77.The Plaintiff alleges that Ms Li had told Chua at the meeting on 14 February 2013 at Pacific Coffee café in the APM Shopping Centre (“14 February Meeting”) that she was interested in buying an entire industrial building for the following purpose (“Purpose”):
78.Chua and hence the 3rd Defendant and Midland were aware of the nature of Ms Li’s Business and the Purpose was a fundamental requirement of any property to be considered and purchased by the Plaintiff. 79.In reliance of and induced by the Representations, the Plaintiff entered into the PASP and the FASP. The Representations pleaded by the Plaintiff were contained in or made by Chua orally as follow:
80.The Proposal contained the following information on user:
81.It is pleaded by the Plaintiff that under the column “Uses always permitted”, various industrial uses were set out including Information Technology and Telecommunications Industries; Radar, Telecommunications Electronic Microwave Repeater, Television and/or Radio Transmitter Installation; Warehouse, etc. without mentioning any restrictions as to the user of the Property.[10] 82.The oral representation made during the 19 February Visit was to the effect that the Property was suitable and ideal for the Purpose[11]. More specifically, it is pleaded by the Plaintiff at para 5 of the RRASOC that:
83.As for the Revised Proposal given to the Plaintiff on or about 22 March 2013, what is pleaded by the Plaintiff at para 8 of the RRASOC is that:
84.It is pleaded that the said Representations were false in that the Property could not be used for general industrial use and could not be used for the Purpose. 85.It is also pleaded that the said Representations were made (i) by Chua on behalf and with the authority of Midland and (ii) by Chua and Midland on behalf and with the authority of the 3rd Defendant. In the absence of authority from the 3rd Defendant to make the Representations, Chua and Midland were in breach of warranty of authority. Lastly, it is pleaded that Midland and Metro were vicariously liable for the Representations made by Chua. 86.In addition to the claim in misrepresentation, it is pleaded that, by reason of the misrepresentations made by Chua and Midland, they were in breach of their contractual or fiduciary duties owed to the Plaintiff as the latter’s agents. The agency in question is pleaded at para 1(7A) of the RRASOC as thus: Chua and Midland were acting as the agents of the Plaintiff in identifying a property suitable for the Purpose and in advising and assisting the Plaintiff in purchasing such a property (“Agency”). 87.One point to note about the RRASOC is para 16 in which it was originally pleaded the Plaintiff found out about the Restriction after the title deeds had been obtained by its solicitors H&N, which was in April 2013. That particular plea was only deleted by amendment allowed on 16 May 2022 ie Day 1 of the trial. The original plea was consistent with H&N’s letter to Midland dated 31 October 2013 and inconsistent with the Plaintiff’s current case that Ms Li discovered about the Restriction only in August 2013. 88.The Midland Parties deny and the 3rd Defendant does not admit any misrepresentation had been made to the Plaintiff. 89.As far as the Midland Parties are concerned, their case is as follows. 90.First, they deny Ms Li had the Purpose or had informed Chua at the 14 February Meeting (or at any time) that she intended to use the Property for the Purpose. Instead, at the 14 February Meeting, Ms Li told Chua that she wanted to acquire an en bloc industrial building for investment purpose with or without tenancy. 91.Second, Chua had not orally represented to Ms Li that the Property was suitable for the Purpose. Rather, Chua had on more than 1 occasion told Ms Li that the permitted user of the Property was limited to ice-making and cold-storage. 92.As for the Proposal and the Revised Proposal which were admittedly given to the Plaintiff, while they did not mention the specific ice-making and cold storage user restrictions, they did not contain any false or misleading statements. 93.Third, the Plaintiff had not relied on and had not been induced by any of the Representations to enter into the PASP and the FASP. 94.Fourth, the Plaintiff is estopped from contending that it had entered into the PASP or the FASP in reliance on the Representations by reason of various terms therein including Clauses 15 and 24 and para 1 of the Riders to the PASP as well as clause 26(d) of the FASP. 95.Fifth, if any alleged misrepresentation had been made out, the Plaintiff has affirmed the PASP and the FASP with knowledge of the Restriction and is precluded from rescinding them. 96.Sixth, if any alleged misrepresentation had been made out against Chua, Midland and Metro deny the misrepresentation was made with their authority, consent etc. 97.On the other hand, Midland counterclaims against the Plaintiff for liquidated damages in the sum of HK$6,030,000 on the basis that it had wrongly failed to complete the purchase of the Property pursuant to Clause 13a of the PASP which provided:
98.As for the 3rd Defendant, its case is that the Plaintiff is not entitled to any relief against it for the following reasons. 99.First, it had no knowledge of the Purpose. 100.Second, it had not appointed Chua or Midland to be its agent in advertising, promoting, marketing or selling the Property, preparing the Proposal or Revised Proposal, or making any representation regarding the permitted user of the Property. Hence, Chua or Midland had not made the Representations on its behalf. 101.Third, the Representations contained in the Proposal and Revised Proposal were not false. 102.Fourth, the Plaintiff did not rely and was precluded from relying on the Representations by reason of (i) the Important Notes in the Proposal and Revised Proposal, (ii) the Caveat in the Proposal and Revised Proposal, (iii) Clause 24 of the PSAP, para 1 of the Riders to the PSAP and Clause 26(d) of the FASP. 103.Fifth, the 3rd Defendant is entitled to forfeit the Deposits upon the Plaintiff’s failure to complete. 104.On the other hand, the 3rd Defendant counterclaims against the Plaintiff for loss and damage for breach of the FASP as a result of the non-completion of the sale and purchase while giving credit for the amount of Deposits forfeited. 105.Alternatively, the 3rd Defendant counterclaims against (i) Chua for breaches of duty and/or negligence as its agent and (ii) Midland and Metro for damages for Chua’s breaches of duty and negligence as its agent. These counterclaims are made if this court finds for the Plaintiff on its claim against the 3rd Defendant on the basis that the misrepresentation was made with its authority. 106.At the invitation from the bench on the last day of trial, all parties have submitted a note of submission of their “definitive” claims for relief against each other, taking into account the evidence which has emerged at the trial. Since their submissions vary depending on this court’s findings on inter alia the Plaintiff’s misrepresentation claim, the same will be dealt with towards the end of this Judgment. Core Issues 107.While the parties have prepared a lengthy Agreed list of issues, none of them have strictly followed it in their Closing submissions. Instead, they have set out what they no doubt perceive as the important issues which will be dispositive of the Action. In light of the parties’ treatment in their Closing submissions, the core issues can be condensed as follows:
Deliberation Purpose and Communication Issue 108.This is the first and foremost core issue for a number of reasons. 109.While the Plaintiff has pleaded in para 2 of the RRASOC that Ms Li was interested in buying a whole industrial building for “business and investment purposes”, what is pleaded later in that paragraph is that only the Purpose (ie primarily for business self-use with the unused areas to be leased out) was specifically mentioned to Chua. It is also clear from Li 1 and her oral testimony that she wanted a whole industrial building primarily for her business needs - essentially she needed more space for the Business. It is also emphasised in para 3 of the RRASOC that Chua well knew the nature of Ms Li’s Business and that the Purpose was a “fundamental requirement” of any property to be purchased by the Plaintiff. Further, at para 5 of the RRASOC, the pleaded Oral Representation said to have been made by Chua during the 19 February Visit was to the effect that the Property was suitable and ideal for the Purpose. Lastly, it was pleaded in para 11 of the RRASOC that the reason[13] why the Representations were false is because the Property could not be used for that Purpose. 110.Once this core issue is decided one way or another, it would have an enormous impact on the rest of the issues. 111.As this court sees it, this is a factual issue between the 2 principal and competing witnesses, Ms Li and Chua, albeit their testimony is corroborated by the other witnesses within their camps. 112.The Plaintiff’s case is supported by Ms Li’s testimony directly as to what she told Chua at the 14 February Meeting and indirectly by what she was told by Chua during the 19 February Visit ie the Oral Representation. On the other hand, the gist of Chua’s testimony is that Ms Li expressed to him her intention to purchase a whole building at a price range of about HK$300 to HK$500 million for investment purpose, with or without tenancy, and not for self-use or for her business. Further, on 19 February 2013, Chua said he had specifically told Ms Li (i) the Property could only be used for ice-making and cold-storage and (ii) since the Property was occupying the Lot with the adjacent Hing Wai Centre, it could not be redeveloped on its own. 113.In Closing, the Plaintiff submits that Chua knew about the nature of Ms Li’s Business in 2013 by reference to Chua’s pleaded averment that in early 2010 he knew Ms Li was engaged at that time in a business relating to electronic navigation but not the focus of which area of electronic navigation. 114.The Plaintiff then submits at considerable length that Ms Li intended to purchase the Property for the Purpose and Chua knew about this. On the other hand, the Midland Parties submit that the Plaintiff has wholly failed to prove the existence of the Purpose or its communication to Chua (or the other Midland Parties). 115.Since the bulk of the Plaintiff’s Closing submissions in this respect are there to rebut the submissions of the Midland parties, this Judgment would be more comprehensible if this court refers to the Midland Parties’ submissions first before setting out the Plaintiff’s reply. 116.First, the Midland Parties submit that the Purpose is founded on the bare assertion of Ms Li. Nothing about the Purpose was mentioned in the WhatsApp messages between Ms Li and Chua from February to October 2013 or in any other contemporaneous record. This is inconceivable if the Purpose was of such fundamental importance in this transaction that Ms Li actually refused to complete the deal, having paid the hefty Deposits. 117.In reply, the Plaintiff submits that such an argument cuts both ways in that the Plaintiff can also argue Chua never mentioned the Restriction in his WhatsApp conversations with Ms Li, and that the argument is more damaging to the Midland Parties’ case since they are the ones who emphasise that Chua had told Ms Li about the Restriction right from the beginning. 118.The Plaintiff is entirely correct that the argument may cut both ways. But given the burden is on the Plaintiff to prove its case on the Purpose and Communication Issue, this court does not agree the argument is more damaging to the Midland Parties. Other things being equal, the Plaintiff suffers from not being able to adduce corroborative documentary evidence. But this court is of course aware the argument is only a factor to be taken into account. 119.Second, the Midland Parties submit that Ms Li’s alleged business needs are unbelievable, when objectively assessed against the circumstances of her purchase of the Sunbeam Property, the Millennium City Property and the Property. 120.In particular, the objective evidence shows that Ms Li and Leung are not truthful in asserting that the Sunbeam Property and the Millennium City Property were acquired for Ms Li’s self-use and not for investment. As for the purchase of the Property in 2013, it took place at a time when the industrial property market in Hong Kong was experiencing an upsurge in price owing to the Government’s industrial revitalisation policy. The incentive to purchase the Property for investment was clearly there. Purchase of Sunbeam Property and the Millennium City Property 121.The reference to Sunbeam Property and the Millennium City Property can be found in Li 1[14] where Ms Li said this:
122.The Midland Parties point out that the evidence shows Sun Royal was actually a joint venture company - it was owned by Ms Li only as to 60%[15] and by Leung and 3 others as to the remaining 40%. While in the box, Leung admitted that Sun Royal was a joint venture company and its shareholders were co-investors. This is far from the picture painted in Li 1. The fact that Sun Royal was a joint venture investment company is obviously relevant to the questions (i) why Ms Li used it, instead of Eletek, to purchase the Sunbeam Property and (ii) whether the Sunbeam Property was really for her business self-use. Eletek was the flagship company of the Business for the marine related electronic equipment and services side. One would think it makes more sense to use a business company to purchase a property for business self-use, rather than an investment company with multiple investors. 123.According to the provisional agreement for sale and purchase dated 26 February 2010, Sun Royal bought the Sunbeam Property subject to a number of tenancies covering the entire 40,982 sq ft except for 556 sq ft which was vacant. The tenancy of 1 of the units only expired in November 2011 while that of another 2 units expired only in January 2012. It is plain that the Sunbeam Property could not be used for Ms Li’s business operations right after completion. On 8 August 2012, Sun Royal entered into an agreement for the sale of the Sunbeam Property at HK$126 million. At that time, the Sunbeam Property was still subject to two unexpired tenancies which were entered into on 21 February 2011 and 6 July 2012 respectively ie well after Sun Royal had become its owner. In these circumstances, how could it be said that Ms Li bought the Sunbeam Property solely for self-use? 124.The Plaintiff’s reply is that Ms Li had explained during cross-examination that the Sunbeam Property was primarily for self-use because after the tenancies of different parts of the Sunbeam Property had expired, she could repossess those units one by one for self-use. In addition, after purchasing the Sunbeam Property which was on the 9/F of the building, Ms Li continued to rent the 12/F (about 15,000 sq ft) for her Business use and she was not be in a hurry to take back the units which had been leased out. Ms Li’s evidence was supported by Leung in that the Business did not urgently need some areas in the Sunbeam Property so it would not take possession of such areas if the tenancy thereof was or could be renewed. 125.Another reply by the Plaintiff is that the Midland Parties are bound by their pleadings where they averred that Ms Li acquired the Sunbeam Property “as an office for her business”. 126.Lastly, the Plaintiff suggests the evidence that Ms Li entered into 2 tenancies with increases in rent after having acquired the Sunbeam Property and that she did not recover the entire Sunbeam Property for her own use before selling it at most indicates that she had a change of mind in terms of how she wanted to use the Sunbeam Property after purchasing it e.g. because it sufficed for Ms Li to run her office on the 12/F of the building while slowly recovering units in the Sunbeam Property on 9/F. 127.On the last point, it is to be noted that Ms Li never quite said she had a change of mind for such reasons in the box. 128.This court does not accept the Plaintiff’s replies are an adequate answer to the points made by the Midland Parties. It seems to this court that while Ms Li may be able to offer in the box some qualifications to what she said in Li 1, the more immediate concern here is the assessment of her credibility as a witness. As The Midland Parties submit in Reply, the true factual position relating to the Sunbeam Property (as well as the Millennium City Property) goes to undermine her credibility. Further, her credibility is not salvaged simply because she had to and did accept in the box, when presented with the records, that those two properties had been purchased subject to tenancies, or she caused further tenancies to be signed after the purchase, or some parts were in fact never used for the Business. With regard to the last point, even Leung had to accept in Leung 2[16] that, after gradually recovering the units whose tenancies had expired, the Business had only occupied about 30,716 sq ft of the Sunbeam Property prior to its sale in August 2012. This court is entitled to take on board the above submissions of the Midland Parties in making its own assessment on her credibility. 129.After the sale of the Sunbeam Property, Sun Royal purchased the Millennium City Property (comprising 25/F and 26/F) which was about 16,280 sq ft. In Li 1, she claimed that moving to the Millennium City Property was “due to the need of the Business”. 130.The Midland Parties submit that if the need was basically for more space, it is strange that the Millennium City Property was so much smaller than the Sunbeam Property. Regarding 25/F of the Millennium City Property, it transpired at trial that Ms Li had never moved into that floor for her Business - that floor was either rented out or left vacant. Leaving the whole floor vacant is telling - when a tenant could not be found, Ms Li and her co-investors behind Sun Royal simply left it vacant instead of putting it to some use by the Business. The evidence about the 25/F contradicts Ms Li’s unqualified claim in Li 1 that the Millennium City Property was bought for her business needs. In the end, Ms Li had to and did concede that the 25/F had always been an investment property. 131.The Midland Parties further submit that Ms Li’s allegation that it was after moving into the Millennium City Property that she found out it was not unsuitable for her business needs defies common sense. In this regard, Ms Li claims the Millennium City Property was unsuitable when she realised (i) she could not put all her businesses into one set of premises and the separation of different departments had led to internal management issues, and (ii) she also could not install such equipment as radar and satellite at the building. 132.Lastly, the Midland Parties point out that notwithstanding Ms Li had found the Millennium City Property most unsuitable as early as February 2013, she continued to use 26/F as her office for 4 more years until 2017. They also criticize Ms Li’s explanation as not coherent and absurd when invited to explain why she had not left Millennium City Property sooner. 133.The relevant parts of Ms Li’s testimony in relation to the Millennium City Property are as follows:
134.In relation to the purpose of the 25/F, the Plaintiff submits that Leung, who would be the most familiar with the detailed operations of the Business, disagreed with Ms Li’s testimony that it had always been an investment property and invites this court to prefer his testimony to Ms Li’s because she was mistaken. 135.Again, this court does not accept the Plaintiff’s replies are in any way an adequate answer to the points made by the Midland Parties. 136.First, this court agrees Ms Li’s testimony that it was after moving into the Millennium City Property that she found out it was unsuitable for her business needs defies common sense. It seems to this court any seasoned businesswoman purchasing a property at the price tag of HK$72 million in order to meet her expanding business needs would, more probably than not, have done some basic research before, rather than after, the purchase. Such research would involve steps to ascertain how the business needs could be met and how her existing business operations would be conducted or adjusted upon the property being available. If for instance there was a desire to house all the departments of the Business under one roof, it is rather incredible that Ms Li would have committed to the purchase the Millennium City Property without knowing whether this desire could or could not be met and the extent to which it could be met. The same can be said of the need to install a sizeable radar or satellite equipment on the rooftop. 137.Second, whether or not the same can be described as incoherent or absurd, this court finds Ms Li’s explanation for not moving out of the 26/F of the Millennium City Property after realizing that it was wholly unsuitable for the Business rather improbable. After refusing to complete the purchase of the Property, Ms Li still had to run her Business on some other premises. If the Millennium City Property was clearly unsuitable and given funding was not a problem according to her, the natural thing to do was to find somewhere more suitable instead of staying on part of it for another 4 years. Even if Ms Li was not in the mood to look for other premises immediately, that is hardly a logical explanation for not looking for them for 4 years. 138.Third, the Plaintiff clearly has no answer to Ms Li’s admission that the 25/F had always been an investment property. The invitation to this court to reject her testimony but to accept Leung’s is a rather desperate attempt to salvage the unsalvageable. For how can one claim Leung was in a better position than Ms Li to know her real purpose in purchasing the Millennium City Property? The evidence clearly shows it was Ms Li who decided where to buy, whether it was the Sunbeam Property, the Millennium City Property or the Property. 139.Lastly, as this court has stated earlier, the more immediate concern here is the assessment of Ms Li’s credibility as a witness and this court agrees that the true factual position relating to the Millennium City does go to undermine her credibility and is something this court is entitled to take into account. 140.For these reasons, it seems to this court Mr Wong SC is correct when he submits the objective evidence shows Ms Li is not truthful in asserting that the Sunbeam Property and the Millennium City Property were acquired for her business self-use and not for investment. Intended Purchase of Success Centre and Purchase of the Property 141.The purchase of the Property was preceded by Ms Li’s inspection and intended purchase of Success Centre on 18 February 2013. 142.Success Centre is situated in Kwai Chung. It is a 29-storey industrial building with a total gross floor area of 240,483.08 sq ft which is much larger than the Sunbeam Property and much much larger than the Millennium City Property. Compared with the floor area of the Property at just under 190,000 sq ft, Success Centre was still larger. According to Chua, at that time, Success Centre was without tenants. 143.In Li 1 at paras 28 and 29, Ms Li said:
144.Arising out of what happened to Success Centre, the Midland Parties make a couple of submissions against the alleged purpose of self-use: (i) Ms Li’s alleged requirement for installing radar and satellite equipment on the rooftop as part of her business needs was inconsistent with her answer in cross-examination that she had not asked Chua whether the rooftop of Success Centre could be used for the installation of the equipment and (ii) Ms Li’s admission in cross-examination that, in light of the enormous space offered by Success Centre, if she had bought it, she definitely would lease out the portion that she did not use, in which case leasing, rather than the Business, would become the primary business of Ms Li. 145.The Plaintiff’s first submission in reply is that even though Ms Li did not know whether she could install the equipment on the rooftop of Success Centre, this issue, according to her, could be easily resolved if she owned the entire building. That is a fair enough response from Ms Li, whether she was right or wrong in so thinking. 146.The Plaintiff’s next submission in reply is that even if Ms Li were to lease out the majority of Success Centre and use only the remaining space for the Business, this only means her intention was both to invest and conduct the Business in it - it does not mean that leasing would become her primary business. This may be true as far as it goes but that reply misses the point. The point is if Ms Li knew she would have to lease out the majority of Success Centre after acquiring it but intended to purchase it, this tends to suggest that her stated primary purpose of business self-use is not as definite as she has portrayed in Li 1. 147.In this court’s view, several indisputable points arise out of Success Centre. 148.First, the fact that it was vacant and Ms Li could move in quickly to start renovation/decoration was seen by her as a distinct advantage to her purpose of business self-use. The relevance of this point will become apparent when it comes to the terms of her purchase of the Property which will be discussed next. Second, it is not in dispute that the inspection of Success Centre took a very short time and, as a fact, Ms Li and Leung who accompanied her on that day had not inspected the rooftop on that day. Third, Ms Li expressed her interest in buying Success Centre on the same day after she had been given a copy of the proposal for sale of Success Centre and after what can only be described as a very brief inspection. People buying a mid-size residential flat of several hundred square feet for self-use may be content with such a brief inspection. In the present case, Ms Li was buying a whole building of 29 floors primarily for her business self-use. One may reasonably query: did she and Leung not have to come up with some idea first as to which floor(s) were suitable for use by which department(s) of the Business and in order to do so, did she and Leung not to have to take a closer look at the layout of the floors? 149.What is important about the whole event about Success Centre is the objective fact that with such limited information offered by the proposal for sale and a casual inspection, Ms Li was happy to pursue Success Centre without further deliberation as to whether the building was really suitable for her. In addition, Ms Li was happy to pursue Success Centre even though she knew she would lease out the majority of its space after acquiring it. These objective facts must be evidence against Ms Li’s testimony that she was looking for a building primarily for her business self-use. If business self-use was not her primary purpose on 18 February 2013 in relation to Success Centre, that must also be the case on 19 February 2013 in relation to the Property. Again, this is a point which goes to her credibility. 150.The Midland Parties’ next submission turns on the terms of the PASP and FASP. 151.Clause 21 of the PASP which was signed by Ms Chan for the Plaintiff on 20 February 2013 read:
152.According to Chua, the first part which is underlined was inserted at the request of Ms Li, the reason being Ms Li had told him she wanted to keep the existing tenant. The second part was added by him in view of the first part. 153.That version of Clause 21 was revised on 22 February 2013, after receiving comments from the 3rd Defendant. The revised Clause 21 of the PASP as signed by both the Plaintiff and the 3rd Defendant read:
154.The revised Clause 21 was substantially repeated in Chinese in Clauses 26(a) and (b) of the FSPA. 155.Further, the Licence Agreement with Hing Wai was specifically dealt with in Clause 6 of the FASP. Under Clause 6.1, the Property was sold subject to and with the benefit of the Licence Agreement. Under Clause 6.5(a), the 3rd Defendant and the Plaintiff should both use reasonable endeavours to obtain Hing Wai’s consent to the transfer by the 3rd Defendant to the Plaintiff on completion of the deposit held by the former pursuant to the Licence Agreement and Hing Wai’s signature to the Novation Agreement in the form at Schedule 4 should be evidence of its consent to the same. Under the Licence Agreement annexed to the FASP, Hing Wai would occupy the entire building and that at least 3-month notice was required before it could be terminated. 156.The perception of Ms Li’s ability to immediately obtain vacant possession as a distinct advantage for her primary purpose of business self-use has been referred to earlier in relation to Success Centre. In relation to the Property, she said in Li 1 at para 50:
157.The Midland Parties submit that the insertion of Clause 21 in the PASP and the corresponding inclusion in the FASP plainly contradict the Plaintiff’s claim about the Purpose and point emphatically to Ms Li’s intention to acquire the Property for investment purpose instead of business self-use. 158.First, there can be no dispute that Ms Li wished to continue what she thought was a tenancy (later corrected to licence) of the Property. Given the way in which Clause 21 was inserted by hand into the standard form PASP, it is clear she wanted to engage in the negotiation of the terms with Hing Wai for the purpose of continuing the existing arrangement with it. 159.Second, Clause 21 in the original draft of the PASP imposed a rather unusual obligation on the 3rd Defendant to enter into a new tenancy with Hing Wai in accordance with the Plaintiff’s instructions. This was resisted by the 3rd Defendant which led to the revised Clause 21 - the Plaintiff should directly negotiate with Hing Wai on the arrangement. 160.Third, Ms Li’s inclination to continue the existing arrangement with Hing Wai is consistent with what Kenneth Chan had told her during the site inspection on 19 February 2013 - if the existing tenant ie Hing Wai moved out because of an increase in rent, it would be difficult for the Plaintiff to find a new tenant because of (i) the requirement to operate ice-making facilities and cold storage in the building, (ii) the necessity to do so with a licence and (iii) the small pool of such licence-holders. 161.Fourth and most importantly, if Hing Wai were to continue its occupation of the Property after completion, the entire building would not be available for Ms Li’s business self-use. This demonstrates that none of Ms Li, or Leung and Ms Chan who corroborated her are truthful on this core issue of Purpose. 162.The Plaintiff’s reply can be found in para 28 of its Closing.
163.The simple point of the Midland Parties is that it is difficult to reconcile (i) Ms Li’s evidence on the Purpose and, for that Purpose, the distinct advantage of being able to immediately obtain vacant possession of the building with (ii) her clear intention to maintain Hing Wai’s occupation of the Property as evinced by Clause 21 of the PASP. 164.The Plaintiff suggests that it would be prudent for it, as a new purchaser, to keep the licence of the Property alive while earning some licence fees when renovation plans were being made. This is hardly believable given (i) the meagre licence fees of only HK$950,000 a month, in comparison with the purchase price of the Property and (ii) the rather long completion date of 31 October 2013, which was more than 8 months from the date the PASP was signed. Whatever renovation plans Ms Li might have in mind, complicated or otherwise, when she suggested the inclusion of the first part of Clause 21 into the PASP, she had not explained in evidence why 8 months would not be enough for the plan to come to fruition. 165.What is telling is Ms Li’s testimony that whether the tenancy with Hing Wai could be terminated at any time was not much of her concern. Mr Tong SC, with his usual sharpness of mind, was keenly aware of the damage this answer could do to the Plaintiff’s case. During re-examination on Day 6, he managed to obtain an answer from Ms Li that “In fact, it does concern me.” But the damage has been done. 166.Third, the Midland Parties submit the evidence shows Ms Li’s purpose in purchasing the Property was for investment at a time when she knew there had been a continuing upsurge in the value of industrial buildings driven by the Government’s industrial revitalization policy. The Government’s said policy and Ms Li’s knowledge of it has already been set out above. What follows deals with the evidence of Ms Li’s conduct as relied upon by the Midland Parties. 167.On 20 February 2013, Chua sent to Ms Li at her request information on the sale and letting transactions of the units in Hing Wai Centre by Whatsapp. Ms Li said in re-examination she had asked for it to do a comparison since the two buildings were on the same Lot. However, there is no suggestion that the entire building of Hing Wai Centre (as opposed to individual units) was up for sale so it is difficult to see what comparison there was for Ms Li to do, the purpose of the comparison or how meaning this comparison could be for that purpose. 168.On the same day, Chua and Stanley had a meeting with Ms Li and Leung at her office in the Millennium City Property. At the meeting, the 3rd Defendant’s previous unsuccessful application to the TPB to convert the Property from industrial to commerce use was discussed and the 7-page application form was shown to her. In re-examination on Day 6, apart from the unsuccessful application, Ms Li also confirmed what she was told by Chua and Stanley: “because these two buildings were on the same lot, so if anything is to be done, it needed the consent of the people in the other building”. 169.The point is that if Ms Li had not told Chua that the Property was for investment, even tentatively, but she was buying it primarily for self-use, it would have been rather unlikely that Chua would bother to mention to her about the unsuccessful application and to obtain the application documents in order to show to her. Further, why should Ms Li be concerned with the transaction record of individual units in Hing Wai Centre if re-development was not on her mind? 170.Next, on 18 March 2013, Ms Li sought a meeting on the same day by Whatsapp to Chua in order to discuss the Hing Wai Centre and the unsuccessful application in these terms:
171.According to Chua, in response, he relayed the questions to George Wong and after receiving the answers, relayed them back to Ms Li. 172.Ms Li admits there was a discussion with Chua about Hing Wai Centre but not the reason for the unsuccessful application to change the user of the Property. In Li 1 at para 76, this is what she said:
173.Ms Li’s denial in this regard is rather odd since she was the one who had asked for a discussion specifically on the reasons why the unsuccessful application was rejected. Ms Li’s conduct in initiating such a discussion is also inconsistent with her answer in re-examination that she was not at all worried about the unsuccessful attempt to change the user of the building from industrial to commercial. 174.Next, in May 2013, Ms Li engaged Headland in relation to the redevelopment of the Property, including in particular, the application to remove the user restrictions. The Midland Parties submit the Headland documents conclusively settle the issue of her purpose in acquiring the Property since they prove decisively she had commenced her redevelopment project on the Property in May 2013. 175.On 2 May 2013, Mr Gunning, managing director of Headland, a development consultant representing an international client, wrote to H&N enclosing their letter addressed to Ms Li (“Headland’s May 2 Letter”) and asked for a meeting concerning the Property. Page 2 of Headland’s May 2 Letter set out their understanding of the user restrictions applicable to the Property:
176.There is no question Ms Li had got the letter. As stated in Li 3, Ms Li and Leung both attended meetings with Headland on 9 and 23 May 2013, whereas Ms Li herself had an additional meeting with Headland on 15 May 2013. 177.The 3rd Defendant submits and this court agrees that Ms Li’s testimony during cross-examination on her communications with Headland is particularly problematic. Just by way of an example for the purpose of illustration, the following is the transcript of Mr Wong SC’s cross-examination of Ms Li on Headland’s May 2 Letter on Day 4 at pp 40 to 43:
178.In this court’s view, Ms Li’s suggestion that both she and Leung did not understand the meaning of that letter is entirely disingenuous. So is her denial that if she did not understand anything, she could always ask H&N to advise her. The fact is that shortly after receiving the letter, Ms Li and Leung had a meeting with Headland on 9 May 2013 - the contents of that letter obviously interested her sufficiently to call for that meeting. 179.Further, anyone in the position of Ms Li who was supposedly ignorant of the Restriction and intent on business self-use would have been alarmed after receiving that letter from Headland and would have immediately tried to enquire with Chua and ascertain the existence or otherwise of the said user restrictions. The enquiry did not have to be in the form of a complaint or in any way confrontational but enquiry it should be. This was the subject of cross-examination of Ms Li on Day 4. As shown in the transcript quoted above, Ms Li’s answer, surprisingly, was (i) she did not reckon the matter mentioned by Headland had too much to do with her and (ii) she should believe in Chua. 180.Instead of enquiring with Chua about what Headland said in the letter, Ms Li sent a message to Chua on 14 May 2013 with the following question:
181.Ms Li admitted in the box that the “2 requirements” in her WhatsApp message referred to the 2 restrictions mentioned in Headland’s May 2 Letter. 182.Importantly, on 23 May 2013, Ms Li and Leung had a meeting with Headland. Pursuant to the discussion at that meeting, Mr Gunning and Ms Li signed three documents whereby Headland was engaged to carry out a list of tasks under three topics for a total fee of HK$1,218,000:
183.Those documents were appended to Headland’s letter dated 23 May 2013 to Ms Li (“Headland’s May 23 Letter”). On page 1 of that letter, there was a re-cap of what had been discussed earlier at the meeting and under the heading “Project Assumptions”, Headland stated:
184.In its Closing, the Plaintiff refers to Ms Li’s testimony that at the meeting on 9 May 2013, Headland advised her to sell the Property on a strata-title basis as her exit plan when she decided to sell the Property in the future. It submits that it is common sense that most, if not all, property purchasers (whether commercial, industrial or even residential) would consider their future exit when acquiring a property if they do not intend to keep the property permanently. This is not something that only investors would consider. In any event, as Ms Li’s discussions with Headland occurred in May 2013 after entering into the PASP and the FASP, even if Ms Li demonstrated any intention to use the Property for pure investment purposes in such discussions, this would still be unrelated to and be unable to disprove the Purpose for which she first acquired the Property. 185.After referring to Headland’s May 23 Letter, the Plaintiff then submits the fact that (i) Ms Li engaged Headland to provide the services of inter alia “Preparation of Investment Memorandum: Project Feasibility, Cash Flow Forecast & Cost Plan” and (ii) there was no mentioning of self-use, may at most show that she wanted to explore the development potential of the Property. 186.This court rejects the Plaintiff’s explanation and justification of what happened with Headland. 187.First, of course generally there is nothing out of the ordinary for purchasers of properties to have some sort of “exit plans” to cater for the exigencies of the unknown future, whenever that may come. However, in the present case, Ms Li was purchasing an entire building with the avowed primary purpose of her business self-use. In the absence of evidence on any concrete plan as to how she intended to make use of the Property for the Business or how long she intended to use it for, it is far-fetched for anyone to think in terms of an “exit plan” even before the completion date. 188.Second, it is not the Plaintiff’s case that there had been a change of Ms Li’s intention. On the contrary, she insisted acquiring the Property for the Purpose was her intention all along. If so, Ms Li’s purpose of buying the Property is either what she alleges ie business self-use plus some ancillary rental income or what the objective evidence tends to suggest ie for investment with a view to re-sale plus some rental income from Hing Wai in the meantime. 189.At this juncture, this court should also deal with a rather lengthy submission in the Plaintiff’s Closing about the investment value of the Property. 190.The Plaintiff submits that in terms of the investment value of the Property, Tang, who is a very seasoned property investor, agreed in court that the rental return of the Property had never been very good. In particular, in 2013 when the 3rd Defendant was trying to sell the Property at around HK$600 million, the licence fee was only HK$950,000 per month, representing a rate of rental return of less than 2% pa. Tang agreed that there were investment opportunities with far higher returns than that. Further, the Plaintiff submits that if Ms Li was purchasing the Property purely as an investment, she would not have said, which is denied, she could leave the Property vacant for a few years and then resell it simply because of an expected higher price upon resale since no reasonable investor would have such a mind set. The Plaintiff then follows up with a long list of reasons as to why Ms Li would not have chosen the Property as an investment. 191.This court does not agree the submission assists the Plaintiff. 192.In this court’s view, the Plaintiff’s submission may be valid if it is suggested that Ms Li was looking for a rental investment property with an eye primarily for its rental return. But as the Headland documents show, the overall intention was to resell the Property in the open market at the most opportune time and that the aim was to achieve a 100% return on equity investment. If so, Ms Li was akin to many property investors in Hong Kong, aiming not so much at the rental income of the property but at the profit upon its resale after “holding”[19] it for whatever period of time it takes to optimise the profit. It is not uncommon in Hong Kong that investors (at least those with no funding or cashflow issues) are willing to purchase a property and leave it vacant until it can be resold at a profit. In other words, the evidence is consistent with Ms Li looking for a re-sale investment property. The evidence shows she had made a handsome profit out of the Sunbeam Property. It is inherently probable that she aimed to repeat that success with the Property in 2013, in light of her knowledge of the Government’s policy about industrial buildings. 193.To conclude, for the above reasons, this court rejects Ms Li’s testimony, as well as Leung’s and Ms Chan’s in so far as they are corroborative of Ms Li’s, as not credible and accepts that of Chua and Stanley on this issue. This court therefore finds the Plaintiff has failed to prove the existence of the Purpose or its communication to the Midland Parties. 194.Given this court’s findings of fact on this issue, many of the other associated issues have been academic and can be disposed of much more quickly. Representation and Fraud Issue 195.For the present purpose, the Oral Representation said to have been made by Chua shall be dealt with first since it directly ties in with the Purpose and Communication Issue. 196.The Plaintiff contends its case that Chua had made the Oral Representation is supported by the evidence of Ms Li and Leung and there is no evidence to disprove the same other than the Defendants’ denials. Further, if this court accepts Chua did make the Oral Representation, it should also find the Oral Representation to be false because the existence of the Restriction clearly rendered the Property unsuitable for the Purpose. 197.The Midland Parties submit that if the existence and communication of the Purpose to Chua cannot be proven, the Plaintiff’s entire case will fail as it is impossible for Chua to have made any oral representation to Ms Li that the Property was suitable for the Purpose which ex hypothesis did not exist and was never communicated to him. Whether or not it is impossible, this court agrees that it is wholly improbable that Chua would have made the Oral Representation given this court’s findings on the previous core issue and shall so find. 198.As this court does not find Ms Li a truthful witness and rejects as incredible her testimony[20] on the existence of the Purpose or its communication to Chua, whether or not there is positive evidence to disprove the Plaintiff’s case is neither here nor there - the denial by Chua, whom this court finds as a truthful witness, is sufficient. But there is actually more than a mere denial. Chua’s testimony is that he, as well as Kenneth Chan, had told Ms Li on 19 February 2013 inter alia about the existence of the Restriction. It is also Chua’s and Stanley’s testimony that on 20 February 2013, before the Plaintiff signed the draft PASP, the existence of the Restriction was reiterated to Ms Li. 199.Further, the Midland Parties submit a number of additional reasons as to why this court should find against the Plaintiff on the issue of Oral Representation. The following are the more cogent ones. 200.First, the Conditions of Exchange and the OP were public documents and the Restriction, as accepted by the Plaintiff in para 13(3) of the RRASOC, was readily ascertainable by inspection and reading the Conditions of Exchange. If so, the Restriction could have easily been found out by H&N in the course of examining the title documents. It is not in dispute that on or about 5 April 2013, the title deeds and other documents relating to the Property were provided to H&N and the Conditions for Exchange and the OP were included among them. However, in Li 1, Ms Li explained H&N did not take issue on the Restriction with SRK because it had not been informed by Ms Li of the Purpose. 201.In this court’s view, whether or not there is a proper explanation as to why H&N did not take up the issue on the Restriction with SRK should be answered by H&N themselves. But it is hard to believe that H&N would not have found out about the Restriction from a perusal of the title documents. This point has an important bearing on the Affirmation Issue. For the present purpose, the more cogent point here is that it is incredible that Chua and Stanley, being experienced estate agents and actually knew of the Restriction, would have naively assumed that they could get away with concealing the Restriction from not just the Plaintiff ie Ms Li and Leung but also from its lawyers but nevertheless decided to run the risk of being found out. 202.Second, the Plaintiff’s failure to raise any concern over Clause 24 of the draft PASP when it was presented at the meeting on 20 February 2013 and its acceptance of that clause[21] in the final version is telling. In para 63 of Li 1, Ms Li said:
203.Standard or not, Clause 24 was there at the suggestion of the 3rd Defendant for its own protection. If it was for the 3rd Defendant’s own protection, it must beg the question: protection against what? As to that, there was no clue in Li 1 - she simply said she relied entirely on Chua’s assurance that there was nothing to be worried about. But as the Midland Parties submit, this allegation of trust is plainly grossly exaggerated since by February 2013, all that Chua had done for Ms Li was to conclude one deal on the purchase of the Sunbeam Property in 2010 - in fact, Chua was not the agent who helped Ms Li sell it in 2012. 204.Clause 24 is actually a very simple clause in Chinese the gist of which is that the 3rd Defendant did not guarantee the Property could be used for any purpose or that its user could be changed. There is no suggestion that Ms Li did not understand it. Ms Li was not a first-time buyer of expensive properties and the present transaction involved a commitment of hundreds of millions of dollars. Realistically, this clause would in all probabilities have rung a bell to anyone in her position (or Leung’s for that matter). Yet, on her case, Ms Li behaved as though she innocently and completely believed in Chua’s assurance and thought it need not cause any concern. This is beyond what this court can accept as believable. 205.Third, the undisputed absence of complaint from the Plaintiff about any misrepresentation as to the user of the Property until 23 October 2013. According to Chua’s evidence, it was only at a meeting in Ms Li’s office on 23 October 2013 that representatives of H&N accused him of failure to explain to Ms Li about the Restriction. This is reflected in the WhatsApp message dated 23 October 2013 between Chua and Ms Li. The absence of complaint must be viewed in light of the evidence that (i) by May 2013 at the latest[22], Ms Li must have realised the existence of restrictions on user from her dealing with Headland and (ii) in early August 2013, she admittedly discovered that the Representations were all false in that the Property could not be used for general industrial use or the Purpose. 206.It was in the letter dated 29 October 2013 from H&N to SRK that the Plaintiff put on record it would not complete the purchase of the Property on the ground of misrepresentation. The letter stated:
207.In fact, after the discovery of the falsity of the Representations in early August 2013[23], the following WhatsApp messages were exchanged between Ms Li and Chua:
208.The Midland Parties submit that there was no complaint against Chua after the discovery in August 2013 and Ms Li was still in the mood for a vacation in Europe because she had been informed of the Restriction at the outset and she was not concerned because she was not buying the Property for the Purpose. Given Ms Li’s conduct aforesaid, this court accepts the validity of that submission. 209.To conclude, for these additional reasons, this court is reinforced in its view that Plaintiff’s case on the Oral Representation must fail. For the record, this court accepts Chua’s testimony that he and Kenneth Chan had informed Ms Li on 19 February 2013 about the existence of the Restriction and that on 20 February 2013, the existence of the Restriction was reiterated to Ms Li by him and Stanley, and shall so find. The issue of the falsity of the Oral Representation does not arise and there is no question of Chua or any of the Midland Parties being fraudulent. 210.As for the Written and Further Representations, the Plaintiff submits that the question is how the words in the 2 documents would be understood by a reasonable person in Ms Li’s shoes in the factual context in which the representations were made. It is trite that the court in construing a representation would adopt an objective approach. 211.The Plaintiff then submits that instead of unambiguously stating the user of the Property was limited to ice-making and cold storage purposes only, the Proposal and Revised Proposal contained various false representations intended to mislead the Plaintiff including:
212.It is self-evident, and accepted by both Chua and Stanley in court, that the Proposal or the Revised Proposal had not spelt out the Restriction. However, the effect of any particular statement should not be ascertained in isolation - it is necessary to have regard to the cumulative effect of all other statements and conduct involved. In the present case, this means whatever statements were or were not contained in the Proposal and the Revised Proposal cannot be considered in isolation. Rather, they must be viewed in light of this court’s finding of fact that Ms Li was told about the existence of the Restriction right from the outset. 213.Looking at the 2 documents in this light, this court must reject the Plaintiff’s case that they would be understood by Ms Li herself or a reasonable person in her shoes to mean the Property was suitable for general industrial use. Instead, this court finds that the 2 documents would be understood to mean the Property was suitable only for the specific industrial use of ice-making and cold storage. There is nothing false about that. 214.For completeness, since the Plaintiff fails to establish any misrepresentation on the part of the Midland Parties, its claim against them for breaches of duty, which is premised on there be a misrepresentation, must also fail. The Inducement and Reliance Issue 215.The relevance of this issue depends on this court finding in favour of the Plaintiff on the Purpose and Communication Issue as well as the Representation and Fraud Issue. Since this court has actually found against the Plaintiff on those issues, there is no question of the Plaintiff having been misled or induced by the Representations in entering into the PASP or the FASP. The Exclusion of Liability Issue and Affirmation Issue 216.In relation to the Exclusion of Liability issue, the Plaintiff submits at section A3.2 of its Closing as follows:
217.It can be seen from the above that the gist of the Plaintiff’s submission against the Defendants’ reliance on the various disclaimer/exclusion clauses is premised on certain facts: the existence of the Purpose, Chua and hence the other Defendants’ knowledge of it and the establishment of fraud. None of these facts are established. 218.As for the Affirmation issue, the Midland Parties’ position is that the Plaintiff cannot even substantiate a case of misrepresentation in the first place and it is not necessary to explore the question whether it is precluded from rescinding the FASP on that ground by reason of actions amounting to “affirmation”. This court agrees. 219.In any event, on the Affirmation Issue, the 3rd Defendant submits inter alia that upon inspection of the title documents by H&N on or around 9 April 2013, the Plaintiff must have known about the user restrictions and thus the falsity of the alleged Representations which gave rise to the right to rescind. The fact that it had failed to raise any complaints of misrepresentation to the 3rd Defendant but instead proceeded to pay the 3rd Deposit of HK$60.3m on 30 April 2013 constitutes an irrevocable affirmation of the FASP. This court agrees but would reiterate its finding of fact that the Plaintiff actually knew of the Restriction as early as 19 February 2013. Even assuming for the sake of argument that H&N, for reasons unknown, did not find out about the Restriction in early April 2013, the payment of the 3rd Deposit on 30 April 2013 would still constitute an irrevocable affirmation of the FASP. The Plaintiff’s argument that it did not know its legal right to elect between affirmation and rescission of the FASP is wholly incredible. As submitted by the 3rd Defendant, H&N had been advising the Plaintiff throughout the subject transaction and it is inconceivable that it would not know about its legal rights. The Authority Issue 220.Judging from the Plaintiff’s Closing at section A2, the crux of the issue is whether the misrepresentations were made by Chua/Midland with the authority (actual or apparent) of the 3rd Defendant so that it is liable for them, and if not, whether Chua/ Midland are liable for breach of warranty of authority. As this court sees it, this core issue has also become academic in light of its findings on the earlier issues - since there was no misrepresentation by the Midland Parties, none of the Defendants including the 3rd Defendant can be liable, whatever authority the Midland Parties might or might not have from the 3rd Defendant. 221.In these circumstances, the 3rd Defendant’s counterclaim against the Midland Parties falls away. The relief issue and other sub-issues 222.The 2 principal issues are: (i) as between the Plaintiff and the 3rd Defendant, the latter’s entitlement to forfeit the Deposits of HK$120.6 million and (ii) as between the Plaintiff and the Midland Parties, the latter’s claim for liquidated damages of HK$6,030,000. Forfeiture of the Deposits of HK$120.6 million 223.The law on the forfeiture of deposits has been authoritatively laid down by the Court of Final Appeal in Polyset. 224.First, at [7] to [13], Bokhary PJ made the following observations the gist of which is that the law on forfeiture of deposits should not be confused with the law governing liquidated damages clauses and the doctrine of penalties:
225.Next, after reciting from Howe v Smith (1884) 27 Ch D 89 at [63]-[65] of his Lordship’s Judgment, Ribeiro PJ also laid down a number of the principles pertaining to the present discussion:
226.In its Closing Submissions, the Plaintiff raises essentially 3 arguments against the forfeiture of the Deposits. 227.First, it is said that, in its pleadings, the 3rd Defendant relied on Clause 17.1 of the FASP to forfeit the Deposits. The clause purported to forfeit all payments which had previously been made to the 3rd Defendant irrespective of how much, what kind of payments they were or when they were paid. It plainly and unarguably is a clause “held in terrorem” over any breach at any point of time and irrespective of what loss the 3rd Defendant might or might not suffer. As such, Clause 17.1 is a penalty clause and the entire clause is void and unenforceable - there is no need for any discussion as to whether the Deposits were truly earnest money. 228.Just to re-cap, Clause 17.1 of the FASP provided that:
229.For completeness, this court shall also set out the terms of Clause 17.3 which provided that:
230.Second, as a matter of true and proper construction of the FASP, there is no legal basis to treat the Deposits as earnest money. In this regard, Clause 17.1 purported to suggest that the Deposits were liquidated damages and genuine pre-estimated loss instead of earnest money to complete the transaction. Hence, the term “Deposits” under the FASP is just a label and there was never any intention on the part of the parties to treat the 20% Deposits as earnest money. 231.These two arguments are inter-related as they both centre on the term and effect of Clause 17.1 and can be dealt with together. For reasons given below, the arguments are devoid of merits. 232.With regard to the first argument, as the passages in Polyset quoted above show, the law’s development in regard to the forfeiture of deposits has followed a very different course from its development in regard to liquidated damages and penalties. When it comes to whether deposits are forfeitable, the law on liquidated damages clauses and penalties is quite irrelevant. The Polyset approach has been followed by a number of authorities cited by the 3rd Defendant as examples: Channel Green Ltd v Huge Grand Ltd [2015] 1 HKLRD 655; Gigabillion Asia Pacific Ltd v Sino Dynamic International Ltd [2014] 2 HKLRD 922. 233.It is unnecessary and indeed unhelpful to analyse the issue in terms of the principles governing liquidated damages clause and the principle on penalties. That was the approach taken by the Court of Appeal in Polyset which was held to be not the correct test: see Polyset at [85]. This is so notwithstanding the vendor’s claim to forfeit the entire deposit in that case was based on Clauses 26(a) and 26(b) of the relevant agreement: see Polyset at [54]. Clauses 26(a) and 26(b) provided as follows:
234.Hence, the 3rd Defendant submit and this court accepts the issue of whether Clause 17.1 of the FASP is penal is irrelevant - forfeiture of the Deposits does not depend on an express forfeiture clause whether or not the 3rd Defendant purports to rely on one - if the parties intend the advance payment as a deposit, they are taken to have agreed that it is to be forfeited in the event that a purchaser fails to complete: Polyset at [66]. 235.With regard to the second argument, even if Clause 17.1 purported to be a liquidated damages clause (but in substance a penalty clause as contended by the Plaintiff) and allowed the forfeiture of the Deposits, that cannot without more determine whether the Deposits should be characterized as true deposit. Nor should Clause 17.1 alone lead to the conclusion that there was no intention on the part of the parties to treat the Deposits as earnest money. 236.As pointed out by the 3rd Defendant, in Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 at 517C, clause 12 of the land contract in question provided that “[i]f the purchaser shall fail to comply with any of the terms and conditions of this agreement, the deposit money and any part payment of purchase price so paid shall be absolutely forfeited as and for liquidated damages (and not a penalty) to the vendor”. It was held by Lord Hoffmann, delivering the judgment of the Privy Council, at 518 F-G that the clause itself did not deprive the deposit of its character as a deposit and an earnest of performance, which was liable to forfeiture on rescission. 237.To similar effect is Ribeiro PJ’s discussion of the effect of clause 26(b) at [101] of Polyset where his Lordship at [101(a)] referred to certain reported cases where words equating the deposit with liquidated damages have been held to transform what appears to be a deposit clause into a liquidated damages clause, making its validity dependent on the associated doctrine of penalties. In relation to those cases, His Lordship’s observation at [101(b)] is instructive.
238.Similarly, in the present case, the 3rd Defendant’s entitlement to claim damages in relation to loss suffered exceeding the value of the Deposits can be found in clause 17(3)(b) of the FASP quoted above. 239.That brings this court to the Plaintiff’s 3rd argument and the crux of the matter. 240.Ultimately, whether the Deposits are true deposits in the sense used in Polyset and are thus forfeitable depends on the 3rd Defendant establishing that at the time when the contract was made, there existed exceptional circumstances which rendered it reasonable to extract an earnest of performance in a sum larger than the conventional 10 per cent in conveyancing transactions in Hong Kong. That larger sum must be a reasonable amount and what is reasonable is to be judged objectively: Polyset at [41(2) and (3)] (Chan PJ) and at [165] (Lord Millett NPJ). 241.The proper approach to unusually large deposits has been stated by Ribeiro PJ at [90] of Polyset as follows:
242.The circumstances in which the 20% Deposits were agreed upon are undisputed. It was Ms Li who specifically requested a completion period of 8 months to October 2013. According to Chua, Ms Li told her that she wanted to extend the completion date to October 2013 because she wanted to sell her UniStrong shares first. When this request was conveyed via Chua to Lau and eventually to Tang of the 3rd Defendant on 19 February 2013, Tang asked for a 20% deposit in return for what he considered to be a long completion period of 8 months with the associated risk to the 3rd Defendant. Eventually, the parties agreed on the 20%, as set out in the PASP. 243.In its pleadings, the 3rd Defendant relied on the following 2 exceptional circumstances to justify its forfeiture of the Deposits:
244.The 2 justifications are further explained in the 3rd Defendant’s Opening:
245.In relation to the first justification, the Plaintiff makes a preliminary point that there is no evidence, or rather, no reliable evidence which supports the 3rd Defendant’s contention that there is a “usual” completion period of 45 to 60 days. In Tang’s witness statement at para 7, he only said as a result of the longer completion period, the 3rd Defendant must ask for a deposit of 20%. This can be contrasted with para 6 of Lau’s witness statement where he mentioned a “usual completion period of 3 months” as told to him by Tang. This is to be further contrasted with Ms So’s witness statement at para 29 which referred to “the usual 45 to 60 days”. 246.It seems to this court that what is a “usual” completion period really depends on what type of property one is talking about and there can be no hard and fast rule. For instance, if one is talking about the Property, the 3rd Defendant’s expert Ms Lam of CBRE has identified 3 previous transactions in Section 5.1 of her expert report with completion periods of 3.4, 3.5 and 4 months which are much longer than the pleaded case of 45 to 60 days. Yet, the deposit for all 3 transactions was still 10%. However, since all parties are content to submit on the basis that 8 months are longer than usual, that is how this court shall consider the first justification. 247.In its Closing, the 3rd Defendant first submits that it is well-established in the cases that a longer completion period could justify the vendor’s demand for a larger deposit. That is true as far as it goes, but if the 3rd Defendant intends to mean a longer completion period in itself could justify the vendor’s demand for a larger deposit, that proposition is not supported by authorities and is actually contrary to Polyset at [43] (per Chan PJ). There are of course cases where the Court has upheld deposits of more than 10%, such as Channel Green and Gigabillion, but they were decided only after taking into account the entire circumstances of the case, including but not limited to a longer completion period. 248.The 3rd Defendant next points out that in their Joint Expert Statement (“Joint Statement”), all three experts appointed by the parties agreed, based on market data, there would be a higher deposit for a longer completion period. On this basis, the 3rd Defendant submits that it is reasonable to ask for more than 10% in the present case. Further, a deposit size of 20% was clearly reasonable since the completion period of 8 months in the present case was substantially longer than that in Channel Green (4.5 months) and Gigabillion (4 months), where the Court found that a 15% deposit was reasonable. 249.This part of the submission is problematic. The first and simple reason is that every case is decided on its own facts. Comparing the deposit size in the present case with that in Channel Green or Gigabillion is not too meaningful since the facts of all 3 cases are vastly different. 250.As far as market data is concerned, the 3rd Defendant submits that based on the data compiled by the experts, in particular the “comparables” identified by Ms Lam of CBRE, it can be seen that a deposit size exceeding 10% is common for transactions of industrial buildings.
251.It seems to this court this sort of analysis provides only limited assistance to the 3rd Defendant. 252.This court will start with the 124 transactions involving Hing Wai Centre. While 54 of those involved a deposit over 10%, 70 of them involved a deposit of 10% or less: see Section 5.2.1 of Ms Lam’s expert report. 253.For transactions of en-bloc general industrial buildings, a summary can be found at Section 5.3 of Ms Lam’s expert report. One can see that out of 14 transactions, 6 of them attracted a 15% deposit while another 6 attracted a 20% deposit. It is true that for all 6 transactions which attracted a deposit of 20%, the completion period was less than 8 months. However, out of the 6 of them which attracted a 15% deposit, there was one with a completion period of 8 months, while another one had a completion period of 10 months. Can the court rely on these 2 transactions and conclude without more that the length of the completion period in the present case can only justify a 15% deposit? 254.In these circumstances, what conclusion can one draw from such data other than that in some cases, willing purchasers and willing vendors had agreed on larger than the conventional 10% deposits? This brings out another point made by the Plaintiff ie normally, no matter what deposit size the parties to a transaction agree on, reasonable or otherwise, they will proceed with it where there is no dispute. It is only if there is a dispute will the issue as to whether a deposit is reasonable and forfeitable become relevant. Hence, merely looking at what deposit size various parties in a no-dispute situation have agreed in the past is of little value to the Court. There is force in that submission. 255.Any way, it should be obvious but in any event it is the oral testimony of the Plaintiff’s expert Mr Faulkner of Colliers, which this court accepts as entirely logical, that the size of the deposit will be determined by the market situation at the time of the transaction. If this court may add, the amount of the deposit also depends on the negotiation between the buyer and the seller, recognising their own circumstances at the time. Take for instance a vendor who, owing to his personal or financial circumstances, was determined to dispose of his property. He may well find the conventional 10% deposit acceptable even if the buyer asks for an unusually long completion period. 256.The 3rd Defendant submits that the 20% deposit can be objectively justified by the volatile property market at the material time. In Ms Lam’s expert report for the 3rd Defendant, she has explained why a higher deposit may be requested by a vendor for a transaction with long completion period in a volatile market. By reference to Section 7.1 of Ms Lam’s expert report, the 3rd Defendant submits that during 2009-2012, the average monthly and annual growth rate of the prices of private flatted factories on Hong Kong Island were around 2% and 23% respectively. Assuming the same deal of the Property could be completed in 2 to 3 months, a transaction with completion period of more than 8 months would mean that the completion was to be deferred by around 5 to 6 months. The projected price growth during the completion period would be around 10-12% i.e. 2% x 5-6 months). 257.At this stage, this court would first make a preliminary observation: at Section 7, Ms Lam was actually trying to answer the question whether the 20% is reasonable in the present case. This is clear from the heading of Section 7 which is “Whether 20% Deposit for the Subject Transaction Reasonable”. This is made even clearer in Section 9 entitled “Conclusion” in which Ms Lam concluded by setting out her opinion that the 20% is reasonable. As correctly submitted by Mr Wong SC, that is the ultimate question for this court to answer, rather than for the experts. 258.Back to Ms Lam’s expert report. If one examines Section 7.1 of her expert report, Ms Lam was referring to the continuous growth in price in the industrial sector between 2009 and 2013. In particular, at Section 7.1.2 entitled “Strong Price Growth”, Ms Lam observed that:
259.And then under the heading “Growth of Price Indices”, Ms Lam said this:
260.In other words, Ms Lam was talking about a rising market between 2009 and 2013. Even after 2013, while the growth in price had decelerated, there was still growth nonetheless, rather than a downturn in price. Since the material time for the present purpose is at the time of the contract ie February 2013, it is this period which is germane to the court’s consideration of the reasonableness and justification for the 20% Deposits. 261.Indeed, it is not disputed by Tang, who was a seasoned property investor, that the market has been rising. In court, Tang agreed that the rising market for the Property was reflected in his consistent increase of the Property’s selling price over a long period of time. Tang also believed that the original purchase price of HK$580 million was not high enough because there was no competition or only little competition. 262.The significance of the rising market is this. 263.The first exceptional circumstances relied upon by the 3rd Defendant is that a longer completion period could justify a higher deposit to compensate it from keeping the Property off the market for a prolonged period. 264.In the present case, however, removing the Property from the market for a longer completion period would not add much risk to the 3rd Defendant. In this regard, Mr Faulkner’s testimony is that in a rising market, the risk of the purchaser choosing not to complete is virtually and the vendor would be less at risk because a purchaser normally would not be stupid enough to default in a rising market. Similarly, the Midland Parties’ expert Mr Chan of Knight Frank also agreed that in a rising market, the vendor would be relatively less at risk because if the purchaser is stupid enough to back out, the vendor would stand a smaller chance of suffering a loss because it is likely he could sell at a higher price to someone else. This court finds the logic of that argument compelling. 265.If so, as far as a vendor in the position of the 3rd Defendant is concerned, objectively, there would be no compelling need to double the usual 10% deposit for removing the Property from the market even if the completion period is longer than usual. 266.The second justification relied upon by the 3rd Defendant is the volatility of the property market following the coming into effect of the demand-side management measures by the Government with effect from 23 February 2013, the distinct risk of market correction and the possibility that the Plaintiff might seek to escape from its contractual obligations when property prices fell sharply before completion. 267.In this regard, the 3rd Defendant submits that, despite the fact that the market was rising, there was a risk that market correction would occur as a result of the increasingly buoyant Hong Kong Island industrial property market, particularly when the completion period is as long as eight months. The realistic risk of market correction at that time was further heightened by the cooling measure introduced by the Government on 22 February 2013 which doubled the ad valorem stamp duty applicable to industrial property. 268.The above is dealt with by Ms Lam in Section 7.2 of her expert report. 269.At the beginning of Section 7.2 at p 44, Ms Lam stated this:
270.At the end of the Section at p 47, Ms Lam stated this:
271.Without any disrespect to Ms Lam, she was stating the hypothetically obvious. Her first point is that the rising market since 2009 could continue to go further up or it could plummet. Her second point is also obvious. If property prices declined, there would be a risk that a purchaser would default if it was to his advantage financially. 272.The 3rd Defendant then refers to Mr Faulkner’s testimony in cross-examination that the property market in Hong Kong could turn quite drastically in eight months. 273.Dealing with Mr Faulkner’s testimony first, the Plaintiff submits that his testimony was taken out of context as the 3rd Defendant has disregarded what he said in re-examination. This court agrees. On Day 14, Mr Faulkner said this in re-examination:
274.The Plaintiff submits that the cooling measures, including the double stamp duty, introduced by the Government on 22 February 2013 was clearly not a reason why 20% Deposits were requested by the 3rd Defendant on the evidence if one follows the sequence of what actually happened. Similarly, the Midland Parties submit that on the evidence, it is not open to the 3rd Defendant to rely on the double stamp duty announced on 22 February 2013 and the possible downward price adjustment triggered thereby to justify the 20% Deposits. The reasons given by both of them are substantially the same and are clearly valid. 275.In Tang’s witness statement, it was on 19 February 2013 that he instructed Lau to convey his request for a 20% deposit to the potential buyer “in view of the risks that Mega Profit might bear as a result of the longer completion period”. Lau’s witness statement is to the same effect. As for Chua, his evidence is that in the morning of 20 February 2013, Lau told him the 3rd Defendant asked for a 20% deposit if the buyer asked for an extended completion period. The cooling measures were simply not mentioned by any of the relevant witnesses as a reason for the 20%, whether on 19 or 20 February 2013. 276.Chronologically, the 3rd Defendant’s request for a 20% deposit was agreed by the Plaintiff, inserted in the draft PASP and signed by Ms Chan on 20 February 2013 - Clause 2 of the draft provided for the payment of deposits totaling HK$116 million which was equal to 20% of the offer price of HK$580 million. In other words, the 3rd Defendant and the Plaintiff had already reached a consensus on the 20% deposit prior to the announcement of the cooling measures and there is no evidence that the Plaintiff had ever sought to renege on that consensus. If so, the announcement of the cooling measures could not be a factor in Tang’s calculation when he demanded for the 20%. 277.It is true that in his witness statement, Tang mentioned a meeting he had on 22 February 2013 with inter alia Chua in which he explained his reasons for asking for 20% which included the long completion period and the risk of uncertainty of the property market as a result of the cooling measures to be announced by the Government. The existence of the meeting is denied by the Midland Parties and Tang was cross-examined on it. The long and short of it is that Tang accepted in cross-examination by Mr Wong SC that (i) the intending purchaser ie the Plaintiff had already agreed to pay a 20% deposit before 21 February 2013, (ii) it was not necessary and there was no need to have the alleged meeting on 22 February 2013 to ask for the 20% deposit or to explain why he needed the 20%, and (iii) the only issue which concerned him was mainly one of increase of price. In these circumstances, this court is not prepared to find as a fact as to the existence of the meeting Tang said he had on 22 February 2013 with Chua and what was discussed there. 278.In Reply, the 3rd Defendant submits the Plaintiff and the Midland Parties are running a bad point for 2 reasons. 279.First, the Court will adopt an objective approach in deciding whether the deposits are justified. Second, the question is to be decided as at the date when the PASP was executed, by which time the double stamp duty policy had already been announced. Such a factor can obviously be taken into account in determining the reasonableness of the size of deposit. In any event, it is artificial to suggest that 20% deposit had already been agreed on 20 February 2013 - given that the PASP was only signed by both parties on 22 February 2013, it was open for them to change the amount of the deposit. 280.On the 1st reason, it is correct that the reasonableness of a deposit is to be judged objectively: Polyset at [41(3)] per Chan PJ. But that only means the court will take into account all the objective factual circumstances of the case in front of it in deciding the question of reasonableness. There is nothing in Polyset, as far as this court can find, which says a vendor’s reason for demanding a higher than 10% deposit as conveyed to a purchaser (via an estate agent) should be ignored as part of the factual circumstances. On the contrary, the following passage, also from Chan PJ’s Judgment, indicates the opposite:
281.On the facts as found by this court, the announcement of the policy had no noticeable effect on either the Plaintiff or on the 3rd Defendant. The parties had reached a consensus on the 20% Deposits before the announcement of the policy and there was no evidence of any further negotiation on it up till the execution of the PASP. 282.On the 2nd reason, it is also true that the question is to be decided as at the date when the PASP was executed, by which time the double stamp duty measure had already been announced. However, whether such a factor can justify the 20% Deposits as being reasonable depends on inter alia the anticipated effect of the measure, assuming it could be ascertained on the very day of its announcement. In the present case, there is no evidence on it. What Ms Lam can offer in her expert report is the hypothetically obvious - the market could go up or it could come down as a result of the measure announced by the Government. 283.For all the above reasons, this court does not accept the alleged volatility of the property market provides a further exceptional circumstances so as to justify the 20% Deposits. 284.Ultimately, as Bokhary PJ put it at [25] of Polyset, a view on such an issue does not readily lend itself to much elaboration. The correct test must of course be applied to the material facts. But once that has been done, the resolution, one way or the other, of an issue of this kind unavoidably becomes very largely a matter of impression on a question of fact and degree. This court totally agrees. 285.Looking at all the circumstances of this case, this court is of the view that forfeiture of the 20% Deposits cannot reasonably be justified and shall so rule. 286.The next question is whether it should be returned to the Plaintiff in full. The answer seems very obvious to this court. 287.The Plaintiff submits that where the forfeiture of a deposit is held unlawful, there is no power in the Court to rewrite the parties’ contract to permit the retention of a lesser reasonable deposit. Rather, the deposit must be repaid in full, subject only to the retention of a sum representing the actual loss of the vendor. As a matter of principle, that must be right. 288.The 3rd Defendant, on the other hand, submits that as laid down in Polyset at [90], forfeiture of a conventional amount of 10% of an agreed deposit will not attract judicial scrutiny. Therefore, the 3rd Defendant must be entitled to forfeit the 1st and 2nd Deposits amounting to HK$60,300,000 or 10% of the purchase price. The only question is whether the 3rd Deposit of HK$60,300,000 can be forfeited. It then submits the law does not prohibit the parties agreeing to a deposit followed by additional part payments towards the purchase price: Polyset at [109]. Therefore, the proper approach should be to ascertain whether each of the deposits paid under the agreement should be regarded as a deposit or part payment: Wan Moon Ling Wandy v Sino Gain Investment Ltd [1997] HKLRD 606 at 611C-612C (Le Pichon J, as she then was). 289.The problem with the 3rd Defendant’s submission is two-fold. First, the Plaintiff and the 3rd Defendant had not agreed to a 10% deposit followed by a part payment of another 10%. They had agreed on a 20% deposit, albeit the 20% was payable by 3 instalments. Second, Wan Moon Ling Wandy does not assist the 3rd Defendant because the so-called proper approach was not what Le Pichon J had done in that case ie deciding one payment constituted a forfeitable deposit while another payment constituted a repayable part payment. What the learned Judge had decided was that both payments were intended by the parties to constitute a single deposit. Since taken together, they constituted 10% of the purchase price, both payments were forfeitable. 290.In this court’s view, the answer to the question can again be found in Polyset. At [108], Ribeiro PJ explained the law in this way:
291.The implication of that passage is clear. A vendor can take his chances by obtaining a larger deposit than 10% but he runs the risk of losing the right to forfeit the deposit altogether. He cannot have the best of both worlds by obtaining a say 20% deposit and, when that cannot be justified, falls back on 10%. 292.For these reasons, this court rules that the 3rd Defendant must return the 20% Deposits to the Plaintiff in full. 293.Looking at the matter in its proper perspective, financially, what this ruling means is this. There is no evidence that the 3rd Defendant has suffered any loss arising from the Plaintiff’s breach of the FASP. The 20% Deposits or HK$120.6 million, being effectively a “windfall” to the 3rd Defendant, will be returned to the Plaintiff. Meanwhile, the Property[24] has substantially risen in value from HK$603 million to HK$1.046 billion. Liquidated Damages Issue 294.This issue is open and shut. 295.As a result of the Plaintiff’s failure to complete, Midland has not received any commission. Midland counterclaims against the Plaintiff in the sum of HK$6,030,000 as liquidated damages on the basis that the Plaintiff was the party who failed to complete the transaction. 296.Just to recap, Clause 13a of the PASP provided:
297.The Plaintiff’s pleaded defence to that counterclaim is Midland was in breach of the Agency and Clause 13a is a penalty clause. 298.By the time of its Closing, the Plaintiff simply submits this at para 326:
299.Given this court’s ruling that there was no misrepresentation and no breach of the Agency, there can be no question of rescission of the PASP or any award of damages to the Plaintiff for misrepresentation or breach of duties on the part of Midland. Also, the defence of penalty is no longer pursued. 300.In these circumstances, this court finds in favour of Midland in its counterclaim against the Plaintiff in the sum of HK$6,030,000. 301.In conclusion, taking into account the above and all the parties’ submissions on relief, this court holds that (i) the Plaintiff is entitled to the return of the 20% Deposits from the 3rd Defendant with interest as from the date of the Writ herein; (ii) all other claims by the Plaintiff against the 3rd Defendant and the Midland Parties are dismissed; (iii) Midland is entitled to the sum of HK$6,030,000 from the Plaintiff with interest as from 31 October 2013; (iv) the 3rd Defendant is entitled to nominal damages from the Plaintiff for breach of the FASP; (v) all counterclaims by the 3rd Defendant against the Midland Parties are dismissed. Disposition and costs 302.There shall be Judgment in favour of the Plaintiff against the 3rd Defendant in the sum of HK$120.6m with interest at the rate of prime plus 1% from the date of the Writ herein to Judgment and thereafter at judgment rate until payment. 303.The Plaintiff’s all other claims against the Defendants are hereby dismissed. 304.There shall be Judgment in favour of Midland against the Plaintiff in the sum of HK$6,030,000 with interest at the rate of prime plus 1% from 31 October 2013 to Judgment and thereafter at judgment rate until payment. 305.There shall be Judgment in favour of the 3rd Defendant for nominal damages against the Plaintiff for breach of the FASP. 306.The 3rd Defendant’s counterclaim against the Midland Parties is hereby dismissed. 307.In the absence of agreement on costs within 14 days from the date hereof, the parties are directed to submit their written submissions on costs (not exceeding 15 pages) within 21 days from the date hereof and leave to them to submit reply submissions (not exceeding 5 pages) if so advised within 7 days thereafter. Unless otherwise directed by this court, costs will be dealt with on paper. 308.Lastly, this court would like to thank the legal team on all sides for their helpful assistance.
Mr Ronny Tong, SC, Mr Lawrence Cheung and Ms Teresa Leung, instructed by Hoosenally & Neo, for the Plaintiff (by Original Action) and the 1st Defendant (by Counterclaim) Mr Yan-lung Wong, SC, Mr Mike Lui and Ms Kelly Cheng, instructed by Tony Kan & Co, for the 1st, 4th and 5th Defendants (by Original Action) and the 2nd, 4th and 5th Defendants (by Counterclaim) Mr Victor Dawes, SC, Mr Ryan Law and Mr Jonathan Ng, instructed by Nixon Peabody CWL, for the 3rd Defendant (by Original Action) and the Plaintiff (by Counterclaim) Table of Contents
[1] Also situated on the same Lot is a building called Hing Wai Centre. That building is not part of the subject transaction but features in this case in relation to the redevelopment potential of the Property. [2] A shelf company incorporated in the BVI in January 2013 and was acquired for the purpose of purchasing the Property. [3] Also signed by the 4th Defendant as the estate agent. [4] Restrictions are also contained in the Deed of Mutual Covenant (“DMC”). [5] Incidentally, he was also the chairman and CEO of Prince Jewellery & Watch Co Ltd. [6] The Chinese handwritten no warranty as to user clause. [7] Ms Li was 51 years old at the time of Li 1 dated 24 September 2018. [8] Expert for the 3rd Defendant. [9] Later extended to 31 March 2016. [10] This is referred to in the RRASOC as the “Written Representation”. [11] This is referred to in the RRASOC as the “Oral Representation”. [12] This is referred to in the RRASOC as the “Further Representation”. [13] Another pleaded reason why the Representations were said to be false is that the Property could not be used for “general industrial use”. [14] Also in Leung 1 at para 11. [15] Via a BVI company. [16] Dated 23 May 2022. [17] Strictly speaking Sun Royal. [18] It is agreed that shortly after this message, on 16 May 2013, Ms Li, Leung had a meeting with Chua and George Wong to discuss matters relating to the Property. [19] The very word used in her first Whatsapp message to Chua on 10 February 2013. [20] As well as Leung’s corroborative testimony. [21] And para 1 of the Riders to the PASP. [22] If not earlier in April 2013 when H&N obtained the title deeds. [23] As per Li 3. [24] As at the trial, the Property was still owned by the 3rd Defendant according to Lau. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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