Jopard Holdings Ltd v. Ladefaith Ltd and Another
Read the full judgment text of HCA 3775/2001 on BabelCite. This High Court CFI judgment was delivered on 12 November 2004.
1. This action concerns an aborted sale and purchase of an apartment on the5 th floor in a development in Yau Yat Chuen, Kowloon, Hong Kong (“theProperty”). The agreement for sale and purchase was entered into on 30 June2001. It was in the 2 nd defendant’s standard form. I shall refer to thisagreement as the “Provisional Agreement”. There were three parties to thatagreement : the plaintiff as purchaser (“the Purchaser”), the 1 st defendant asvendor (“the Vendor”) and the 2 nd defendant as ag
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HCA3775/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.3775 OF 2001 --------------------- BETWEEN
---------------------- Before : Recorder B. Yu, SC, in Court Dates of Hearing : 1 - 5 November 2004 Date of Judgment : 12 November 2004 ------------------------- J U D G M E N T ------------------------- Introduction 1.This action concerns an aborted sale and purchase of an apartment on the5th floor in a development in Yau Yat Chuen, Kowloon, Hong Kong (“theProperty”). The agreement for sale and purchase was entered into on 30 June2001. It was in the 2nd defendant’s standard form. I shall refer to thisagreement as the “Provisional Agreement”. There were three parties to thatagreement : the plaintiff as purchaser (“the Purchaser”), the 1st defendant asvendor (“the Vendor”) and the 2nd defendant as agent (“the Agent”). 2.The Purchaser is a company controlled by Mr Shum Wai Lung (“Mr Shum”). The Vendor is a company controlled by Mr Leung Sai Tat (“Mr Leung”). Mr Leung and his family previously resided in the Property. Thefoundation for the proceedings is a tragic accident which occurred about a yearbefore the Provisional Agreement. In July 2000, Mr Leung’s son, who was then about four years old, accidentally fell from the balcony of the Property to the ground floor. He was taken to hospital and was certified dead about eight hours later. The accident was reported in the press at the time, although the parties have notadduced any evidence of the extent of the publicity. The agreements 3.Mr Leung moved out of the Property in November 2000 into rentedaccommodation. In January 2001, he decided to sell the Property and engagedthe Agent in looking for a buyer. He signed, on behalf of the Vendor, an EstateAgency Agreement with the Agent in a form prescribed by the Estate Agents Authority (see Form 3 of the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation). Clause 2 of that agreement makes itclear that the agency relationship between the Vendor and the Agent was to bea dual agency, in other words, that the Agent would also act for the Purchaser. Schedule 1 to that agreement lists the duties of the Agent. It provided that the Agent shall :
Under Schedule 2, the Vendor agrees to pay the Agent commission at the rate of 1% of the transacted price of the Property if a binding agreementto sell is entered into between a specified period, but the Vendor wouldbe under no obligation to pay any commission if completion of thetransaction fell through without fault on the part of the Vendor. 4.In March 2001, Mr Shum was in the happy position of having recentlybecome a father and was looking for a new home for his family. He engagedthe Agent to introduce properties to him. The person he contacted was oneJacky Lee, who was working in the Whampoa Branch. 5.In June, Jacky Lee introduced Mr Shum to Mr Victor Yeung at the YauYat Chuen branch of the Agent. Mr Yeung was held out as specialising inproperties in Yau Yat Chuen. It is common ground that on 28 June 2001, Mr Yeung took Mr Shum and his wife to view the Property and on Mr Shum’srequest, a second inspection of the Property was carried out on the same day. At the time of the inspection, the Property was furnished but unoccupied. Access to the Property was gained through the assistance of a Filipino maidhired by the Leung family. 6.After the two inspections, Mr Shum expressed his interest in purchasingthe Property. Negotiation ensued, and ended with Mr Shum signing theProvisional Agreement on behalf of the Purchaser on 30 June. Mr Leungsigned for the Vendor on the same day. 7.The agreed price was HK$10 million. The Purchaser paid a deposit ofHK$300,000 upon signing. Under the terms of the Provisional Agreement, theAgent was entitled to receive HK$100,000 as commission from each of the Vendor and the Purchaser, and if either the Vendor or the Purchaser fails tocomplete the sale and purchase, the defaulting party shall compensate the Agent HK$200,000 as liquidated damages. 8.The Provisional Agreement called for a further sum of HK$700,000 tobe paid upon signing of a formal agreement for sale and purchase on or before16 July 2001. This never happened. A few days after the ProvisionalAgreement was signed, Mr Shum learnt about the tragic incident from a friendwhom he said also worked as an estate agent. He said he felt cheated and gavenotice in early July to terminate the Provisional Agreement. The Vendor denied that thePurchaser had any right to terminate the Provisional Agreement and duly forfeited thedeposit. The Agent in turn claims that since the sale was aborted by reason ofthe Purchaser’s default, the Purchaser should compensate the Agent for its lossin commission. 9.Before I outline the disputes between the parties from which the issuesarise, I must mention one other fact. On the same day as the date of theProvisional Agreement for sale and purchase, the Purchaser signed an estateagency agreement with the Agent. That agreement was in a form prescribed by the Estate Agency Authority (see Form 4 under the Estate Agents PracticeGeneral Duties and Hong Kong Residential Properties) Regulation). Schedule2 of that agreement sets out the duties of the Agent, which are :
There are also provisions as to the payment of commission, which aresimilar to those found in the Estate Agency Agreement for the Vendor. The dispute of fact and evidence 10.What is in dispute is what happened during and after the inspections. ThePurchaser’s case is that during the second inspection of the Property, Mr Shumasked Mr Yeung the questions “有無古靈精怪” and “無嘢唔妥呀嗎” (translated as : is there anything weird or unusual), to which Mr Yeungallegedly responded in Chinese “no, no, no” and said that the Vendor wasselling the Property because the Vendor’s family was emigrating to Australia. According to Mr Shum, he made a remark at the time “呢個時候仲移民” (translated as : emigrating at this time?). 11.The Purchaser’s case is that two days later on 30 June 2001, when Jacky Lee and Mr Yeung went to Mr Shum’s office with the form for theProvisional Agreement, Mr Shum repeated the same questions after he signedthe agreement and the cheque for the deposit but before handing over the cheque, and drew a similar definite response from Mr Yeung. 12.The Agent does not dispute that Mr Shum did ask the questions, but itscase is that the questions were only asked once, and that was inside Mr Shum’scar after the second inspection. More importantly, the Agent’s case is that Mr Yeung answered Mr Shum by saying “not to my knowledge” rather than witha definite negative and denied he made any remark about the Vendoremigrating.13.There is another relatively inconsequential factual dispute between thePurchaser and the Vendor as to what Mr Shum allegedly said to Mr Leung inthe presence of Jacky Lee and Victor Yeung some days after Mr Shum foundout about the tragic incident. On the whole, Mr Yeung supported Mr Shum’sversion. I regard this episode as of marginal relevance even on credibility. 14.Each party called one witness. The Purchaser called Mr Shum. TheVendor called Mr Leung and the Agent called Mr Yeung. 15.All three parties filed valuation reports. At the trial, counsel for thePurchaser indicated that he was not going to rely on any valuation evidence asagainst the Vendor. Consequently, counsel for the Vendor abandoned anyreliance on valuation evidence. As between the Purchaser and the Agent, bothparties agreed the contents of a Joint Report dated 21 October 2004 compiledby the valuers engaged by the Purchaser and that engaged by the Agent. Thisreport expresses a joint opinion that the open market value of the Propertywould be reduced by 7.5% by reason of the accident. The valuers also agreedthat in the case of suicide or murder, property values would be reduced between25 to 30%. 16.Thedifficulty I find with this evidence is that the report does not deal with a numberof matters which common sense suggests would be relevant, such as (1) whether the amount of reduction would depend on (a) the extent of publicity givento the tragic incidents, and (b) the time lag between the occurrence of theincidence and the notional valuation date, and (2) the extent, if any, to whichproperty prices (and the comparables relied on) could be affected by whetherthere was any urgency on the part of the vendor in selling the property after thetragic event. Nevertheless, the significance of this evidence is that the Agent accepts that the tragicincident does have a bearing on the open market value of the Property. The claims 17.In this action, the Purchaser seeks rescission of the ProvisionalAgreement and the return of the deposit of HK$300,000 paid to the Vendor on thebasis that the Purchaser was induced to enter into the Provisional Agreement bymisrepresentation made by the Agent as agent for the Vendor. It also seeksdamages against the Vendor and the Agent in the sum of HK$300,000, althoughthis claim is in substance an alternative to the return of the deposit and is madeon the basis that the Agent acted in breach of its duties to the Purchaser,causing loss to the Purchaser in the forfeiture of the deposit. The Purchaser alsoseeks a declaration that the Agent is not entitled to any commission. 18.There is a counterclaim by the Agent against the Purchaser for the sumof HK$200,000 being the commission that the Agent would have earned had thePurchaser not rescinded the Provisional Agreement. The issues 19.Although the issues pleaded are wide ranging, including a challenge ontitle, allegations of fraud material non-disclosure and collateral contract, counsel’s arguments focused on the following issues :
Purchaser’s case against the vendor 20.I shall first consider the Purchaser’s case against the Vendor. I havealready noted that many of the issues raised in the Re-amended Statement ofClaim were no longer pursued at the trial. Counsel for the Purchaser expresslywithdrew the allegation of fraud. He made no submission on the question oftitle. He conceded that the Vendor had no duty in law to make any disclosureof the tragic incident to the Purchaser, a concession which appears to me to be well justified, see Sykes v. Rose [2004] EWCA Civ 299. 21.The only remaining argument against the Vendor was a claim that thePurchaser entered into the Provisional Agreement by reason of misrepresentation by the Agent, acting on behalf of the Vendor. This raises two issues : was there a misrepresentation by the Agent, and if so, did the Agenthave authority, actual or apparent, from the Vendor in making thatrepresentation. Was there a misrepresentation? 22.The burden of proving misrepresentation is on the Purchaser. Twoquestions arise : (1) what was said between Mr Shum and Mr Yeung on 28 June and on 30 June, and (2) what was the meaning of what was said. 23.I do not find the conflict between Mr Shum’s evidence and that of Mr Leung easy to resolve. There were other witnesses which could have beencalled but were not. On the Purchaser’s case, the first relevant conversationtook place in the presence of Mrs Shum, whilst thesecondrelevantconversation took place in the presence of a Mr Thomas Ho, who was themanaging director of the Purchaser company. On the Agent’s case, there wasone other witness : Jacky Lee. However, none of these witnesses was called. 24.Having considered the totality of the evidence, I would, on balance,prefer the evidence of Mr Shum on the issue. In particular, I accept Mr Shum’s evidence that Mr Yeung did not qualify his answer and that had Mr Yeung done so, he would not have been satisfied and would have asked himhow well did he know the Property. Mr Shum is, I believe, right in saying thatMr Yeung was eager to conclude the transaction. I have the same impressionfrom the evidence. Such eagerness could well be the reason why Mr Yeung didnot bother to make any inquiry before responding to Mr Shum’s query andgave him a less than truthful answer to fend off further inquiry. I also acceptMr Shum’s evidence that he asked the questions again on the occasion whenhe signed the Provisional Agreement and that Mr Yeung gave a definiteresponse in the negative. I find that the Agent did represent to the Purchaserthat there was nothing weird or unusual about the Property. 25.Was the representation false? This depends on what the representationcould reasonably be understood to mean. Mr Shum’s evidence (which I accept) was that whenhe asked the questions, he was seeking to find out whether any mysterious ortragic event occurred in the Property. In my view, the first question couldreasonably be understood to be directed to finding out whether there wasanything mysterious about the Property. The second question appears to me tobe wider. Different people are likely to understand it differently. The meaningof the question was ambiguous and accordingly the representation was ambiguous. 26.Counsel accepted that where, as here, the representation is ambiguous, the law is correctly stated in Halsbury’s Laws of England,para. 747 whichreads:
(See also Spencer Bower, Turner and Handley, Actionable Misrepresentation, 4th ed. (2000) para. 82.) 27.Is the sense in which Mr Shum understood the representation reasonable? In my view, if a tragic event such as murder, suicide or fatal accident tookplace in a property, an ordinary person is likely to regard that somethingunusual happened. For the Agent, Mr Maurellet for the 2nd defendant pointed out that Mr Leung’sson only died some eight hours after the fall and he died in hospital, and contendedthat a representation that nothing tragic happened within the Property was notfalse. I do not accept that submission. The fall took place from within theProperty. The child suffered fatal injuries from the fall, from which he diedshortly thereafter. An ordinary person would regard the tragic incident to berelated to the Property. Authority of agent 28.Merely proving that the Agent made a misrepresentation does not entitlethe Purchaser to rescind the Provisional Agreement. The Purchaser must alsoestablish that the Agent had the authority, either actual or ostensible, of theVendor in making the representation. 29.In Cheng Kwok Fai v. Mok Yiu Wah, Peter [1990] 2 HKLR 440, themisrepresentation complained of was the area of the flat. The agent gave thepurchaser a plan which shows erroneously that the area was 950 sq. ft. Thequestion was whether the misrepresentation was made on the vendor’s behalf. Godfrey J (as he then was) had this to say:
30.In Yili Concepts (HKG) Limited v. Lee Wai Chuen and Hong KongProperty Services (Agency) Limited, HCA12911/1997 (unreported), Deputy Judge S. Kwan (as she then was) considered Cheng Kwok Fai v. Mok Yiu Wah[1990] 2 HKLR 440 and other authorities (but Chung Yin v. Billion Extension Development Ltd[1997] 1 HKC 531, Welltech Investment Ltd v. Easy Fair Industries Ltd[1996] 4 HKC 711 and Green Park Properties Ltd v. Dorku Ltd, HCA 8564/1998 (13 June 2000 unreported)). The learned judgeexpressed the view that the question is one of fact in each case. With respect,I agree. 31.The Estate Agency Agreement between the Vendor and the Agent madein January 2001 did not confer authority on the Agent to furnish to thePurchaser any information not supplied to the Agent by the Vendor. There isno express term to such effect, and none can be implied. Whilst the Agent hadthe duty to market the Property and conduct negotiation, it is not necessary forthe Agent to have such authority from the Vendor in the performance of suchduties. 32.Nor do I find that the Vendor has clothed the Agent with any apparentor ostensible authority in making the representation relied on. The only pleadedfact which the Purchaser relies on is the fact that the Vendor allowed Mr Yeung to show the Property to the Purchaser. In my view, this is not sufficientto clothe Mr Yeung with apparent or ostensible authority to make therepresentation. 33.I should mention one further matter here. The Ordinance and Regulationsprovide for a mechanism by which certain information concerning the property should be passed to the purchaser. One of the forms prescribed under the EstateAgents Practice (General Duties and Hong Kong Residential Properties) Regulationis a “Property Information Form”. There are two parts in this form. Part 1 was to be filled in by the estate agent. This includes matters such asparticulars of current ownership and subsisting encumbrances registered in theLand Registry, floor area, year of completion, user restriction etc. Part 2 wasto be filled in by the Vendor. This includes questions on whether there has beenany structural alterations to the property and whether there was anyreinstatements, rectifications, repairs or improvements of any part of theproperty or the building of which the property forms part which are requiredby Government or the management office or the owners incorporation of thebuilding. In the present case, only Part 1 of the Form was filled in. Mr Leung’s evidence, which I accept, is that Jacky Lee and Mr Yeung toldhim he was not required to fill in the Part 2. In the Estate Agency Agreementsigned by the Purchaser at about the same time as the signing of the ProvisionalAgreement, there was a tick indicating that the Purchaser waived its right toreceive the Property Information Form. No evidence was led from thePurchaser on this aspect. Mr Yeung’s evidence was that he ticked the boxbecause Mr Shum indicated at the time that he would waive his right to receivethe information. If a purchaser is provided with the Property Information Form,he would be entitled to rely on the information contained therein, especially inPart 2 of the Form, as being information provided by the vendor or with hisauthority. In the present case, the information was not contained in the form(and indeed is not required to be so included) and Mr Shum did not evenreceive it. 34.Moreover, one must not forget that when the questions were asked byMr Shum, Mr Yeung was acting as the Purchaser’s agent. Indeed, there is noevidence to suggest that on the first occasion when the questions were asked (on28 June 2001), Mr Shum was even aware that the Agent was acting in a dualcapacity. He was only provided with the Estate Agency Agreement later, on30 June. The questions which Mr Shum asked were, in my view, moreconsistent with Mr Shum seeking to find out information from his own agentthan with an inquiry through the Agent with the Vendor. 35.For these reasons, I find that the Purchaser’s claim against the Vendorfails. The Purchaser was not entitled to rescind the Provisional Agreement. TheVendor was entitled to forfeit the deposit. In my view, the Purchaser had littlejustification for suing the Vendor. Negligent misrepresentation and duty of agent 36.A professional agent engaged for reward is under an implied contractual duty to exercise reasonable care and skill on behalf of his client, see Chitty on Contracts, Hong Kong Specific Contracts, para. 1-103. Such duty arises bothin contract and in tort. Mr Maurellet does not dispute that the Agent owes aduty of care to the Purchaser. None of the counsel has referred to me to anyauthority on the scope or standard of duty that may be owed by an estate agentin Hong Kong. There is one relatively recent case where the Court had to consider the scope of duty of an estate agent. In Chiu Wai Ling v. Chan Yau Chi [2002] 2 HKC 154, the vendor accepted that the title was defective because ofpotential liability for estate duty by reason of a deed of gift, and sought to claimagainst the estate agent (as third party), for alleged breach of duty in failing toadvise the vendor properly (such as inserting a proper clause in the provisionalagreement or to warn the vendor to seek independent legal advice). Judge Lokheld that the estate agent did not owe the duty contended for, holding that thedegree of skill and care expected of estate agents in Hong Kong would notextend to legal matters on which estate agents received no training. Inparagraph 31 of his judgment, the learned judge referred to a provision in theCode of Ethics issued by the Estate Agency Authority which requires estateagents to provide services based on knowledge, training, qualifications andexperience in real estate business. The case is in my view distinguishable. Whatis expected of the Agent in the present case is not knowledge or experience onquestions of law, but the passing on of accurate and reliable information aboutthe Property concerned. 37.The standard of care and skill is that possessed by a person of ordinary competence exercising the same calling, see Charlesworth on Negligence, 10th ed. para. 8-03. It has been said that if an allegation of negligence is madeagainst a professionally qualified man, the court usually requires evidence fromthose within the same profession as to the standard expected on the facts of thecase and the failure of the professionally qualified man to measure up to that standard, see perButler-Sloss LJ in Sansom v. Metcalfe Hambleton & Co.[1998] PNLR 542. However, this is not an inflexible rule and one may debatewhether an estate agent comes within the category of professionally qualifiedmen. Nonetheless, my task has not been made easier in this case by the absenceof any evidence of the practice of estate agents on this sort of matter. 38.It seems to me that if an estate agent acting for a purchaser knows orought to have known of the occurrence of a tragic incident in a property, andknew or ought reasonably to have known that this would materially affect thevalue of the property, that agent would owe a duty to alert its client to that fact. In the present case, there is no evidence that the Agent was aware of theoccurrence of the tragic incident at the time the representation was made. Although there is some evidence fromMr Leung and Mr Shum as to the fact that the tragic incident was publicisedat the time and that apparently some estate agents knew about this, thePurchaser has not adduced sufficient evidence to satisfy me on the balance ofprobabilities that a prudent agent ought reasonably to have known of theincident. Mr Kwok did not even cross-examine Mr Yeung on the basis that he knew or ought to have known of the incident. Although it is now agreed between the Purchaser and theAgent that the tragic incident would have an adverse effect on the market value of the Property, there is no evidence before me that a prudent estate agent ought reasonably to have known that an accident such as the one in question here would have a material effect on the market value. 39.However, in the present case, the Purchaser specifically raised a query withthe Agent. The Agent did not answer the query by simply disclaiming anyknowledge. As stated above, I find that Mr Yeung assured Mr Shum thatthere was nothing unusual about the Property. 40.It was one of the express terms of the Estate Agency Agreement betweenthe Purchaser and the Agent that the Agent would obtain informationconcerning the Property for the Purchaser. It must be implied that the Agentwould exercise reasonable care and skill when providing such information. Therelationship between the parties is also such that the law would impose that dutyin tort. Mr Yeung must have known that Mr Shum would rely on the information he was providing, and it was certainly foreseeable that the Purchaser may suffer loss anddamage if the Agent did not exercise reasonable care and skill in the collection and passing on of information concerning the Property. 41.Mr Yeung made no inquiry before answering the questions. In myjudgment, Mr Yeung should have undertaken reasonable inquiry beforeanswering his client’s query and he failed in his duty when he gave theassurance to Mr Shum without first having done so. On the evidence, therewould not have been any difficulty in his finding out the tragic incident. 42.In my judgment, the Agent was in breach of its duties, both in contractand in tort. 43.I have no hesitation in accepting Mr Shum’s evidence that he relied on the representation by Mr Yeung. I accept his evidence that because he wasbuying the Property as a residence, he was concerned about whether there wasanything untoward about the Property and hence raised the questions. Also, hisimmediate action in seeking to rescind the transaction once he found out aboutthe tragic incident supports this conclusion. 44.In the circumstances, I am satisfied that the Agent acted in breach of itsduties to the Purchaser, and am further satisfied that the Purchaser has sufferedloss and damage as a result. The amount of loss claimed is quantified at HK$300,000, being the amount of deposit forfeited to the Vendor. The counterclaim 45.The Agent counterclaims against the Purchaser on the basis of the termsof the Provisional Agreement. Clause 10 provides that if either the Vendor orthe Purchaser fails to complete the sale and purchase, the defaulting party shallcompensate the Agent HK$200,000 as liquidated damages. Here, as between theVendor and the Purchaser, it was the Purchaser’s default that led to the abortionof the sale and purchase. It would, however, hardly seem fair for the Purchaserto have to pay the Agent HK$200,000 when, as between the Purchaser and theAgent, it was the Agent’s breach of duty which was the cause of the problem. It is trite that an agent cannot recover its remuneration if the agent acted inbreach of his duties as agent, such breach either going to the root of thecontract or otherwise justifying the principal’s repudiation of liability to pay, see Bowstead and Reynolds on Agency, 17th ed. para. 7-047. In my judgment,it must necessarily be implied in the Provisional Agreement that the Agentcannot recover this sum if it was the Agent’s breach of duty that led to thedefault. In any event, if the Agent were to be allowed to claim the HK$200,000,this would only have increased the amount of damages suffered by thePurchaser as a result of the Agent’s breach. To avoid circuitry, I would dismissthe counterclaim. Order 46.In the premises, I would :
47.I make an order nisi that the plaintiff do pay to the 1st defendant its costsof the action; and that as between the plaintiff and the 2nd defendant, the 2nd defendant shall pay to the plaintiff the plaintiff’s costs of the action against the2nd defendant and of the counterclaim, such costs not to include the plaintiff’scosts of the action against the 1st defendant. All costs are to be taxed if notagreed.
Mr Kam K. Kwok, instructed by Messrs Wong Poon Chan Law & Co., for thePlaintiff Mr Timothy Ling, instructed by Messrs Philip Chan & Co., for the 1st Defendant Mr José-Antonio Maurellet, instructed by Messrs Cheung & Choy, for the 2nd Defendant |
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