Lee Li and Another v. Cheung Chi Keung and Others

HCA003799/1997

HCA3799/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3799 OF 1997

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Coram : Mr Recorder Kwok S.C. in Court

Dates of hearing : 14 and 15 June 1999

Date of judgment : 15 June 1999

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J U D G M E N T

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1. The three named Defendants ("the Vendors") are and were in January 1997 the registered owners of Flat B4, 18/F, King's Towers, 480 King's Road, 15-23A, Tsat Tsz Mui Road, Hong Kong ("the Property").

2. The two named Plaintiffs ("the Purchasers") were the purchasers under a Provisional Agreement in Chinese dated 24th January 1997 ("the Agreement") made with the Vendors to purchase the Property at the price of $3.5 million.

3. The Purchasers' pleaded claim against the Vendors is one of misrepresentation. The alleged representation is pleaded in paragraphs 2 and 3 of the Re-Amended Statement of Claim in these terms :-

"2. On or about the morning of 24th January 1997 [the Purchasers] together with their real estate agent Mr Jackson Wong of Top One Property Agency Company attended at the said Property with a view to negotiate for the purchase of the said Property and there they met Mr Cheung Chi Keung, one of the Defendants [i.e. the 1st named Vendor].

3. The said Mr Cheung Chi Keung there and then orally represented to [the Purchasers] that :-

(a) the construction area of the said Property was 850 square feet and the saleable area thereof was 698 square feet;

(b) the master bedroom, the bedroom, the sitting room, the toilet, the kitchen and the storage area formed part of the construction area and/or the saleable area."

4. Although I have drawn the attention of Mr Peter Wong, Counsel for the Purchasers, to the fact that there is no allegation that the alleged representation was made on behalf of the other Vendors, the Purchasers have made no application to amend the Re-Amended Statement of Claim. There is no allegation that the 2nd or 3rd named Vendors had anything to do with the alleged representation.

5. In my judgment, the Re-Amended Statement of Claim discloses no reasonable cause of action against the 2nd or 3rd named Vendors and the Purchasers' claim against them must be dismissed.

6. I continue with the Purchasers' pleaded claim against the 1st named Vendor. The Re-Amended Statement of Claim avers that :-

"4. Rely on such representation, [the Purchasers] there and then agreed to purchase, and a provisional agreement in Chinese dated 24th January 1997 (hereinafter called 'the Agreement') on the form of the agent of [the Vendors] was there and then executed by [the Purchasers] and [the Vendors] for the sale and purchase of the said Property at the price of HK$3,500,000.00 on such terms and conditions as provided in the Agreement and [the Purchasers] paid to [the Vendors] a deposit of HK$80,000.00 (hereinafter called 'the Deposit').

5. It was subsequently discovered by [the Purchasers'] bankers Messrs. Bank of Communications through the said bankers' surveyors that :-

(a) the saleable floor area of the said Property was only about 530 square feet;

(b) the said master bedroom and a portion of the said storage area were part of the flat roof of the said Property and as such the said master bedroom and the said portion of the said storage area formed part of the illegal structures in the said Property within the meaning of the Building Ordinance.

6. [The Purchasers] have paid a stamp duty of HK$70,500.00 to the Hong Kong Government towards the stamping of the Agreement pursuant to the Stamp Duty Ordinance.

7. By reason of the matters pleaded in paragraph 5 hereof, the said representations as pleaded in paragraph 3 hereof are in truth and in fact misrepresentations and by reason thereof as a result, [the Purchasers] have suffered loss and damage and as such [the Purchasers] are not obliged to purchase the Property and are entitled to claim loss and damage which they have thereby suffered.

Particulars of Damage

(a) Return of the Deposit paid HK$80,000.00

(b) Stamp Duty paid to the Hong Kong Government HK$70,500.00

8. By reason of the matters pleaded in paragraph 7 hereof, [the Purchasers] through their former Solicitors, Messrs. Ford Kwan & Co, by a letter dated 5th March 1997, rescinded the Agreement. In the premises, the consideration for the payment of the sum of HK$80,000.00 has wholly failed, and the said sum became payable to [the Purchasers]."

The Purchasers claim an order that they have effectively rescinded the Agreement, return of the deposit in the sum of HK$80,000.00, stamp duty paid in the sum of HK$70,500.00, interest and costs.

7. It is noteworthy that the Purchasers' pleaded claim is that the alleged representation is said to have been made on 24th January 1997, i.e. the date of the Agreement and that the Purchasers rescinded by their letter dated 5th March 1997.

8. The Purchasers called two witnesses. The first one, Madam Lee Li, is the first Purchaser. She said that she had inspected the Property on three occasions, i.e. on 11th, 22nd and 24th January 1997. She inspected carefully on each occasion. The 11th was the occasion when both Purchasers and their two children attended. The 22nd was the occasion to discuss the purchase price with the 1st Vendor, and the 24th was to sign the provisional agreement. On 11th January, she asked the 1st Vendor about the size of the Property and the construction area. She said that the 1st Vendor said words to the effect that "what you see with your eyes, all the rooms, bedrooms, master bedroom, kitchen, and toilet, 850 square feet, saleable area 80%, 698 square feet." She asserted that the bank valued the Property at about $2 million but when shown the valuation of $3.3 million on the valuation report dated 30th January 1997 ("the Bank's Valuation") at page 106 of the Bundle, she said that she did not care about the Bank's Valuation.

9. Mr Chong Sze Tat, the person who prepared the Bank's Valuation for his boss' signature, was the Purchaser's other witness. He said he knew the definition of the phrase "construction area", but when asked what it was, he said that it was the area defined by the developer! He also said that the saleable areas stated in the Bank's Valuation of "about 530 square feet plus flat roof about 160 square feet as scaled from the floor plan attached herewith" had a margin of error of 5-10%.

10. Whilst on the Bank's Valuation, I note two points :-

"GENERAL COMMENTS

At the date of our inspection, we noticed that the flat roof was substantially covered and enclosed forming a master bedroom with bathroom ensuite and a portion of storage area.

In the absence of any documentary proof to indicate that the structures are authorized, we have not taken into account their value in the assessment. Also, we have not taken into account the expenses to clear the structures in the event that they are unauthorized."

The point I note here is that there is no assertion that the structure was in fact illegal or unauthorised. The second point I note is that :-

"OPINION OF VALUE

Based on the above, we are of the opinion that the Open Market Value of the subject property for financing purpose, at the date of this report, assuming sale with the benefit of vacant possession and free of all encumbrances is HK$3,300,000."

$3.3 million is 94.29% of the contract price of $3.5 million.

11. By letter dated 22nd February 1997, Messrs Ford Kwan & Co., former Solicitors for the Purchasers, stated that :-

" We are instructed by our clients that they have caused the property to be inspected by an authorised person and were being advised that alteration works had been done to the property and the erection now existed on the flat roof appertaining thereto was unauthorised/illegal. In the absence of any prior approval of the Buildings Department and/or any other proper authority as to the said alteration work and erection, we take the view that the title of your client to the property has been rendered defective and we enclose herewith a copy of the valuation report of the above property in support of the aforesaid for your information."

Counsel for the Purchasers told me that the Bank's Valuation was the "valuation report" referred to in this letter. Thus, although the Purchasers and their then solicitors knew by the date of this letter that the saleable area was about 530 square feet plus flat roof of about 160 square feet, there was no complaint about insufficient area. There was no complaint about any misrepresentation. Indeed, there was no allegation of any representation at all.

12. By letter dated 28th February 1997, the former Solicitors for the Purchasers stated that :-

" We would point out that as per our said letter dated 22nd February 1997 and the copy valuation report therein enclosed, a prima facie case has been established that in view of the unauthoirsed erection now existed, your client does not therefore have a good title to the above property. In the circumstances, our client is definitely not obliged to proceed with the sale and purchase of the property as scheduled."

Again, there was no complaint about area or misrepresentation.

13. By a letter 1st March 1997, the former Solicitors for the Purchasers stated that :-

" We refer to your letter to us dated 14th February 1997 and now return you herewith a copy of your draft Agreement for Sale and Purchase duly approved by us on behalf of our client, the Purchaser, as amended and underlined in red for your kind attention.

If you are agreeable to our amendments, please let us have your fresh engrossment of the Agreement for Sale and Purchase for signature by our client soonest possible." (emphasis added)

14. By letter dated 3rd March 1997, the former Solicitors for the Purchasers stated that :-

" We refer to the above and in compliance with the Provisional Agreement made between our respective clients dated 24th January 1997. We enclose our client's cheque drawn in your favour for the sum of HK$270,000.00 being further deposit and part payment of the purchase price of the above premises. Kindly acknowledge receipt.

The enclosed cheque is sent to you against the personal undertaking of your firm to hold the same as stakeholders and not to release to your client unless and until the formal Agreement for Sale and Purchase (in the form as approved by us) has been duly executed by our respective client.

In the event that our respective clients are unable to agree on the terms of the Agreement for Sale and Purchase, you shall return the deposit to us forthwith." (emphasis added)

15. By letter dated 5th March 1997, former Solicitors for the Purchasers stated that :-

" We are instructed, in addition to the issue of illegal/unauthorised structure appertaining to the property which our client only comes to the knowledge of the same upon conducting a valuation report thereto, when our client inspected the property together with Ms Sandy Lam of Y & C Property Investment Company and Jackson Wong of Topone Property Agency Company in the morning on 24th February 1997, during the course of negotiation your client Mr Cheung Chi Keung represented to ours that the gross area of the property was 850 square feet and its saleable area was 698 square feet. In reliance of such representation of your client, our client entered into the Provisional Agreement for Sale and Purchase of the above property with your client on 24th February 1997.

However, it was revealed in the subsequent valuation report that the saleable area of the property consists of only 530 square feet and not 698 square feet as represented by your client. This, thus, has a material impact on both our client's needs and in obtaining necessary finance in the purchase of the property and our client would not have agreed to purchase the property if they had know the saleable area was only 530 square feet. In the circumstances, our client is therefore entitled to rescind the said Provisional Agreement."

There is no suggestion that the "valuation report" referred to in this letter is a report other than the Bank's valuation.

16. On these and other evidence before me, I find that on 11th January 1997, in response to the 1st Purchaser's question about the size of the Property and the construction area, the 1st Vendor said words to the effect of "what you see with your eyes, all rooms, bedrooms, master bedroom, kitchen and toilet is about 850 square feet and the saleable area is about 80%." In other words, the 1st Vendor stated that the construction area was about 850 square feet and that the saleable area was about 80%. I do not accept that the 1st Vendor had mentioned the figure of '698'. '698' is not 80% of 850. I also do not accept that the 1st Vendor had said anything about the area on 24th January 1997. By 24th January 1997, the Purchasers had inspected the Property on at least three occasions. The 1st Purchaser could and did see for herself what the actual area was. She had been told on 11th January what the construction area was and on her own evidence, the meeting on 24th January 1997 was to sign the Provisional Agreement.

17. The Purchasers have therefore failed to prove the representation on 24th January as pleaded in paragraphs 2 and 3 of the Re-Amended Statement of Claim. Although I have asked Counsel for the Purchasers, at the close of the Purchasers' case, whether there was any application to amend the pleadings, Counsel replied in the negative. There has been no application to amend. The claim of misrepresentation must fail against all Vendors.

18. Further, I find that the Purchasers have not relied on the 1st Vendor's statement on the construction and saleable area, assuming that it amounted to a representation. Having inspected the Property carefully on at least three occasions, and having agreed to purchase some of the furniture and fittings from the Vendors, the Purchasers clearly relied on what they saw with their own eyes and could not complain about the Property being too small. See Chitty On Contract, 27th Ed., Volume 1, paragraph 6-019 where the learned editors quote the case of Hartlelid v. Sawyer & McClockin Real Estate Ltd. [1977] 5 WWR 481 in support of the proposition :-

"... Where an estate agent's particulars misrepresented the size of a garage, and the buyer had examined the whole property thoroughly on two separate occasions, it was held that the misrepresentation had had no effect."

See also :-

"... The reason why he would not have bought it is not because it would have been too small; his inspection of the flat, and his satisfaction with it, would certainly have precluded him from complaining of the misrepresentation on this ground. The reason why he would not have bought it is because the bank would not advance him as much to buy the flat, with its smaller area of 846 sq.ft., as it would have done if its area had been as stated, 950 sq.ft.. I accept this." Per Godfrey. J (as he then was) in Cheng Kwok-fai v. Mok Yiu-wah, Peter and Another [1990] 2 HKLR 440 at page 445C.

19. On financing by banks, there was no allegation by the Purchasers of the amount, if any, of bank financing required by them before they would or could go ahead with this transaction. The Purchasers have not begun to try to prove any reliance on the statement on the construction or saleable area of the Property. On the contrary, there was no allegation of representation and no complaint of any misrepresentation until 5th March 1997 despite having received a copy of the Bank's Valuation by 22nd February 1997 and as noted above, $3.3 million is over 94% of the contract price of $3.5 million. The Purchasers fail to prove reliance and this is another reason why the Purchasers' claims must fail.

20. If this is not already a miserable failure, the Purchasers have failed to prove the untruth of the 1st Vendor's statement about the construction area or the saleable area of about 80% (i.e. about 680 square feet). The Purchasers have adduced no evidence to prove the untruth of the construction area. The saleable area as stated in the Bank's Valuation is 530 + 160 = 690. 690 exceeds 680. Counsel for the Purchasers have been unable to cite any authority for the proposition that "saleable area" excludes the area of "flat roofs".

21. If I have been wrong throughout, the Purchasers have affirmed the Agreement after having knowledge of the Bank's Valuation, i.e. after having knowledge of all the relevant facts.

22. See paragraph 6-077 in Chitty on Contract :-

"If the representee, having discovered the misrepresentation, either expressly declares his intention to proceed with the contract, or does some other act inconsistent with an intention to rescind the contract, he is bound by his affirmation."

To quote again from Godfrey J.A. :-

" It is well-settled that a party to a contract is entitled, after discovering that false representations have been made to him, to call off the contract (in lawyer's language, to claim that the contract be rescinded ab initio). But he cannot blow hot and cold. He must elect whether to affirm or rescind the contract. If by his words or conduct he elects to affirm it, he cannot go back on that election." per Godfrey J.A. in Sunny Square Limited v. Artsland Properties Investment Limited and two Others (unreported, CACV34 & 35/1999, 4th June 1999) at page 12 F-H.

23. The letters dated 1st March 1997 and 3rd March 1997 are, in my judgment, each clear and unequivocal affirmation by the Purchasers of the Agreement. Having affirmed the Agreement, the Purchasers could not rescind on 5th March 1997. Counsel for the Purchasers contended that the Purchasers could not be held to have affirmed unless the Purchasers knew their legal rights. The Vendors do not have to show that the Purchasers appreciated their legal position resulting from the relevant facts : see Peyman v. Lanjani [1984] 3 All ER 702 at 722-723, quoting Lord Pearson in Kemmins Ballrooms Co. Ltd. v. Zenith Investments (Torquay) Ltd. [1970] 2 All ER 871 at 890 and Deputy Judge Tong, Q.C. in Lam Fung Ying v. Ho Tung Sing & Another [1993] 2 HKC 436 at 454H-456C.

24. For reasons which I have endeavoured to give, the Purchasers fail and fail miserably in their claims against all the Vendors. The Purchasers' claims are dismissed.

[Submissions from Counsel on costs]

25. I was tempted to order costs on a basis other than party and party, but I have just been persuaded not to do so. So the order I make is that the Plaintiffs' claims are dismissed with costs.

Representation:

Mr Peter Wong, inst'd by M/s Jesse H.Y. Kwok & Co., for the Plaintiffs

Cheung Chi Keung, 1st Defendant in person, present

Yip Wing Ling, 2nd Defendant in person, present

Lin Kam Tai, 3rd Defendant in person, present