Ricacorp Properties Ltd v. Kan Yiu Wing Stuart and Another

Case No.DCCJ 5483/2003

Court

District Court

Date—

Judge—

Case Document

100%Judiciary

DCCJ5483/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5483 OF 2003

__________

BETWEEN

	RICACORP PROPERTIES LIMITED	Plaintiff
	and
	KAN YIU WING STUART	1^st Defendant
	KU BENEDICT WEI CHUN	2^nd Defendant

__________

Coram: Deputy District Judge W. K. Kwok in Court

Date of Hearing: 4^th, 5^th, 8^th, 9^th, 10^th & 16^th August 2005

Date of Handing Down Judgment: 25^th February 2006

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JUDGMENT

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1.The 1^st Defendant (“D1”) was at the material times the registered owner of the property known as Unit E2 (being Duplex on the Ground Floor and the Maisonette Floor immediately thereabove and the Garden thereof of Block E) and Car Parking Space No. 15 of Goodview Garden, 24 Stubbs Road, Hong Kong (“the Property”).

2.In or about March 2003, D1 was desirous of selling the Property and engaged the service of the Plaintiff who was at the material times a licensed estate agency to look for prospective purchaser.

3.At or about the same time, the 2^nd Defendant (“D2”) was desirous of buying a low-rise property in the vicinity of Happy Valley or Jardine Lookout. D2 also engaged the service of the Plaintiff to look for an appropriate property with a view to purchasing it.

4.By a provisional agreement for sale and purchase of the Property dated 17^th April 2003 and made between D1 as the vendor of the first part, D2 as the purchaser of the second part, and the Plaintiff as the estate agent acting for both sides of the third part (“the Agreement”), D1 agreed to sell and D2 agreed to purchase the Property through the Plaintiff subject to the terms and conditions contained in the Agreement at the purchase price of $7,500,000.

5.The Agreement provided inter alia that D1 and D2 should sign the formal agreement for sale and purchase of the Property on or before 5^th May 2003, and that the sale and purchase should be completed on or before 20^th June 2003.

6.D2 did not sign the Agreement personally. It was signed by his mother Madam Chow Yuet Sheung Stella (“DW3”) on his behalf. There is no issue that the Agreement was binding on D2. At the same time, DW3 also signed on behalf of D2 a Supplemental Agreement also dated 17^th April 2003 (“the Supplemental Agreement”), which provided to the effect that D2 was aware of the existence of the illegal structures “as disclosed by the vendor”, and confirmed that he was willing to purchase the Property despite the illegal structures and would not allege this as a breach of the Agreement.

7.D2 paid to D1 deposit for purchase of the Property at different times totaling $750,000 according to the Agreement. However, D1 and D2 never signed the formal agreement for sale and purchase of the Property, or proceeded to complete the sale and purchase, in accordance with the time schedule laid down in the Agreement or at all. On the contrary, by a cancellation agreement dated 15^th July 2003 and made between D1 and D2 (“the Cancellation Agreement”), D1 and D2 mutually agreed to cancel the Agreement and the Supplemental Agreement on the terms provided therein, and D2 obtained a full refund of the deposit from D1.

The Plaintiff’s case

8.The Plaintiff’s claim against each of D1 and D2 is for the sum of $75,000 being commission payable under the Agreement.

9.Clause 10 of the Agreement provided that in consideration of the services rendered by the Plaintiff, the Plaintiff should be entitled to receive $75,000 from D1 and $75,000 from D2 as commission. It was further provided in the same Clause that the commission should be paid on or before the date of signing the formal agreement for sale and purchase.

10.Clause 11(b) of the Agreement provided that: -

“Should the Vendor and Purchaser after signing this agreement both agree to cancel the agreement, they will jointly and severally become the defaulting parties of this agreement and will be liable for the payment of their own commission mentioned herein before.”

11.It is the Plaintiff’s case that since D1 and D2 had cancelled the sale and purchase of the Property by entering into the Cancellation Agreement, each one of them is liable under Clause 11(b) of the Agreement to pay it commission in the sum of $75,000.

Proceedings between the Plaintiff and D1

12.By a consent order dated 30^th November 2004, D1 paid $40,000 to the Plaintiff in full and final settlement of the Plaintiff’s claim, and discontinued his counterclaim. He takes no further part in these proceedings thereafter. The present trial is therefore solely between the Plaintiff and D2.

D2's Defence and Counterclaim

13.D2 denies that the Plaintiff is entitled to its claim or at all on the ground that the Plaintiff has failed to earn its commission and/or he is entitled not to pay or is excused from paying the Plaintiff any commission because the Plaintiff had been in breach of its contractual duties and/or statutory duties owed towards him. D2 further contends that as a result of the Plaintiff’s breach, he has suffered loss and damage in the sum of $114,124 that forms the subject matter of his counterclaim.

The Plaintiff's duties as a dual estate agent towards D2

14.There is no dispute that the Plaintiff had acted as a dual estate agent for D1 and D2 as the vendor and purchaser of the Property respectively at all material times with the agreement of D1 and D2. It is also admitted that the Plaintiff, in its capacity as an estate agent for D2, owed to D2 certain contractual as well as statutory duties. The parties however do not agree upon the exact scope of such duties.

The contractual duties

15.D2 contends that the Plaintiff owed him at the material times express as well as implied contractual duties as his estate agent.

16.It is common ground that DW3 had also signed on behalf of D2 an estate agency agreement with the Plaintiff (“D2’s Estate Agency Agreement”), whereby D2 appointed the Plaintiff to act as his estate agent in his intended purchase of the Property on the terms therein contained. This agreement was dated 14^th April 2003. There is conflicting evidence from the parties on the time when it was signed by DW3. There is also evidence from the Plaintiff’s own witnesses that it had been backdated. There is however no issue that D2’s Estate Agency Agreement was at all material times binding upon both the Plaintiff and D2. It must follow, and the Plaintiff so admits, that the duties expressly specified in D2’s Estate Agency Agreement were duties owed by it towards D2.

17.According to Clause 2(d) of D2’s Estate Agency Agreement, the Plaintiff’s duties were as set out in its Schedule 2, in addition to the duties placed on it by D2’s Estate Agency Agreement or any enactment.

18.In Schedule 2 to D2’s Estate Agency Agreement, the Plaintiff’s duties were set out in Clauses (a) to (d). By virtue of Clauses (a), (b) and (d), the Plaintiff was under the following express contractual duties to: -

“(a) obtain information in relation to the Properties for the Purchaser;

(b) arrange for the Purchaser to inspect the Properties if requested todo so by the Purchaser;

(d) assist the Purchaser in entering into a binding agreement for saleand purchase with the vendor of any one or more of the Properties.”

19.In addition to the express contractual duties, D2 also alleges in the pleadings that it was an implied term of D2’s Estate Agency Agreement that the Plaintiff should provide services to him with honesty, fidelity and integrity, that it should protect and promote his interests, and that it should exercise due care and diligence in fulfilling its duties towards him.

20.The Plaintiff does not admit in the pleadings that D2’s Estate Agency Agreement contained the implied terms as pleaded by D2. However, in my view, it is trite law that such terms are implied in almost every agency contract involving a professional agent, and if authorities are required, reference can be made to Chitty on Contracts, Volume II, 29^th Edition, paragraphs 31-111 to 31-123. In the present case, there was nothing that made D2’s Estate Agency Agreement an exception to the general rule, especially when the Plaintiff was carrying on the business of a professional estate agent and performing its duties, not gratuitously, but for reward.

21.Furthermore, the Plaintiff was at all material times a licensed estate agent carrying on the business of estate agency work in Hong Kong. It was in that capacity that D2 appointed it to be his estate agent and entered into the estate agency agreement. It was therefore obviously the intention of both parties that D2 required the Plaintiff to provide, and the Plaintiff agreed to provide, such services that were reasonably to be expected from a licensed estate agent. Such services no doubt had to be services that met the requirements and standard stipulated in the Practice Directions issued by the Estate Agents Authority regarding the practice, competence and integrity of licensed estate agents in Hong Kong. Part III of the Practice Directions contained at the material times the following Code of Ethics that had to be followed by all licensed estate agents in Hong Kong including the Plaintiff: -

“3.3 Professional knowledge and competence required

3.3.1 Estate agents and salespersons shall, in the course of business, provide services to clients with honesty, fidelity and integrity. They should protect their clients against fraud, misrepresentation or any unethical practices in connection with real estate transactions.

3.4 Ethical and moral standard during practice and responsibilities

3.4.1 Estate agents and sales persons, in engaging and accepting an appointment as an agent, should protect and promote the interests of their clients, carry out the instructions of their clients in accordance with the estate agency agreement and act in an impartial and just manner to all parties involved in the transaction.

3.5 Exercising due diligence

3.5.1 Estate agents and salespersons shall, in fulfilling their duties, exercise due care and due diligence.”

22.Since the implied contractual duties contended by D2 were just a replica of the Plaintiff’s duties prescribed by the Code of Ethics, I have no doubt that if the Plaintiff and D2 had been asked at the time when they entered into D2’s Estate Agency Agreement whether they intended to and did contract with one another on the basis that the Plaintiff would perform such duties towards D2, they would have unhesitatingly answered in the affirmative. For this reason, I find that D2’s Estate Agency Agreement did contain the implied terms and contractual duties as pleaded by D2.

23.In light of the general principle of agency law as well as the Code of Ethics, it is quite surprising that the Plaintiff does not admit that D2’s Estate Agency Agreement contained the said implied terms and duties. It is however clear that the Plaintiff is not saying that, for instance, it had no duty of good faith or fidelity towards D2. Its witness admits in evidence that the Plaintiff did owe to D2 such contractual duties, and Mr. Kenneth Wong, Counsel for the Plaintiff, has advanced no argument to the contrary.

Statutory duties

24.D2 further relies upon sections 36(1) and 36(2) of the Estate Agents Ordinance, Chapter 511, Laws of Hong Kong (“the Ordinance”), and in particular sections 36(1)(a)(iii), 36(1)(a)(vii) and 36(2)(g), to say that the Plaintiff owed towards him statutory duties to supply him with information relating to the Property. There is no dispute that the Ordinance and all the subsidiary legislations created thereunder governed and regulated the duties of all estate agents in Hong Kong including the Plaintiff.

25.D2 contends firstly that the Plaintiff owed him a duty to provide him with the information contained in Form I, i.e. the Property Information Form, in relation to the Property under the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation (“the EAPR”).

26.Mr. Keith Yeung, Counsel for D2, submits that this statutory duty arises in this manner. Section 36(1)(a)(iii) of the Ordinance provides that a licensed estate agent who has entered into an estate agency agreement with the purchaser of a property, should supply to the purchaser information prescribed for the purpose of section 36(1)(a) of the Ordinance. Section 36(2) provides that information prescribed for the purpose of section 36(1)(a) may include a vendor’s statement referred to in section 36(2)(g) of the Ordinance. In that statement, the vendor is to provide information relating to structural additions or alterations to the property, and information relating to repairs or improvements required or proposed as regards the premises. In addition, section 36(2)(g) further requires this statement “to be made by the vendor in a manner prescribed for the purposes of this paragraph”. The manner in which the vendor’s statement is to be made is prescribed by the EAPR. A number of forms are specified in the schedule to the EAPR, including Property Information Form (i.e. Form 1). Form 1 comprises of two parts. Part 1 is under the heading of “Property Information”, and should be completed by the licensed estate agent. Part 2 is under the heading of “Vendor’s Statement”, and should be completed by the vendor or the licensed estate agent. The information to be provided in Part 2 is the kind of information referred to section 36(2)(g) of the Ordinance. It is however not mandatory for the vendor to make the vendor’s statement in Form 1, since there is an alternative section in Part 2, to be filled up by the licensed estate agent, stating that the agent, “acting for the Vendor, having duly advised the Vendor to provide information in Part 2 of this Form but the Vendor decided not to provide the same”. In addition, Note 4 of Form 1 has stipulated, “A licensed estate agent is required to provide to a purchaser the original or copy of the completed Form unless the purchaser specifically waives his right to receive the same”. According to Regulation 3 of the EARP, Form 1 is prescribed for the purposes of the Ordinance, and “accordingly, the information (including particulars and other matters) required to be included in those forms, and the requirements to be complied with as specified in those forms are also prescribed for those purposes”. Hence, it is a mandatory requirement of the law that the required information must be provided in Form 1, that the licensed estate agent must complete Form 1 irrespective whether the vendor is willing to make a Vendor’s Statement, and that the licensed estate agent must provide the completed Form to the purchaser unless the purchaser specifically waives his right to receive it.

27.I agree with Mr. Yeung’s submission and find that the Plaintiff was under a statutory duty to supply to D2 the information contained in Form 1 unless D2 had specifically waived it. In fact, D2 was subject to the same contractual duty. Clause 4 of D2’s Estate Agency Agreement had expressly stipulated that the Agent [the Plaintiff] should provide to the Purchaser [D2] in respect of the Property all relevant Property Information Form including Vendor’s Statement prescribed under the EAPR duly completed and signed by the Agent in the case of dual agency unless the Purchaser expressly waives his right to receive it.

28.D2 contends secondly that by reason of section 36(1)(a)(vii)(B) of the Ordinance, the Plaintiff, being a dual agent acting for both the vendor (D1) and the purchaser (D2), was under a duty to provide to him, upon his request, any information provided to it by D1 as regards the Property, unless it had been expressly instructed by D1 not to do so. Such a duty, in my view, was clearly imposed upon the Plaintiff by the very wordings of the statute.

Events leading to the cancellation of the Agreement

29.After D1 and D2 had signed on the Agreement, they instructed their respective solicitors, namely, Messrs. Charles Yeung, Clement Lam, Liu & Yip (“CYCLLY”) and Messrs. Y. T. Chan & Co. (“YTC”) to act on their behalf to complete the sale and purchase. Their solicitors started exchanging correspondences for that purpose from 23^rd April 2003 onwards.

30.On 30^th April 2003, Mr. Hui Tsz Ping (“DW4”), a conveyancing clerk of YTC, attended the office of D2 for the purpose of execution of the formal sale and purchase agreement for the purchase of the Property. While DW4 was explaining to D2 the contractual description of the Property with reference to its floor plans, D2 told DW4 that the Property had a basement immediately below the Ground Floor of the Property (“the Basement”). DW4 immediately checked the floor plans and found that the Basement was not there. He told D2 that the Basement might be an illegal structure, and advised D2 to appoint a surveyor to investigate into the legality of the Basement before completion. D2 accepted DW4’s advice. DW4 reported the matter to the supervising solicitor Mr. Szeto Wai Sun (“Mr. Szeto”). Mr. Szeto agreed that a surveyor should be appointed. DW4 then on behalf of D2 appointed Mr. Kenny Kong Siu Man (“DW2”), a building surveyor, of DCL Consultants Limited to conduct the investigation. DW4 also informed Mr. Anthony Ng of Wing Lung Bank of this matter. Wing Lung Bank was the proposed mortgagee bank of the purchase.

31.On 2^nd May 2003, DW2 attended the Property with Mr. Au Tat Wai Jeffrey (“PW1”), a sales agent of the Leighton Hill Brach of the Plaintiff to inspect the property. PW1 was a dual agent acting for both D1 and D2, liaised between them and brought about the sale and purchase between D1 and D2. However, DW2 and PW1 could not gain access into the Property, and DW2 was only able to inspect from outside two out of the four enclosure walls of the Basement and the main entrance of the Property.

32.On 3^rd May 2003, a meeting was held in D2’s office for discussing the matter raised by the Basement. The persons attending the meeting included PW1, Mr. Cheung Tak Cheong Louis (PW3), Mr. Szeto, DW2, DW3 and DW4. PW3 was at the material times the branch manager of the Leighton Hill Branch of the Plaintiff, and hence the supervisor of PW1. D2 was not present in this meeting. At the end of this meeting, it was decided that a proposal would be made to D1 to postpone the date of payment of further deposit and execution of the formal sale and purchase agreement for three weeks. The purpose was to allow DW2 to have more time to investigate the Property and to verify whether there was any structural safety problem with the Property.

33.By a letter dated 5^th May 2003, YTC, on behalf of D2, complained to CYCLLY that D1 had never through its estate agent (i.e. the Plaintiff) informed D2 that the Basement of the Property might be an authorized / illegal structure. They said D2 was entitled to rescind the Agreement and the Supplemental Agreement, recover the initial deposit and claim against D1 for damages. They expressly reserved D2’s right against D1.

34.By another letter dated the same date (i.e. 5^th May 2003) but stated to be “without prejudice and subject to contract”, YTC stated to CYCLLY that notwithstanding the legality or otherwise of the existence of the Basement, D2 might proceed with the purchase if D1 could agree to incorporate additional clauses into the formal agreement for sale and purchase. The additional clauses, in gist, were to the effect that D1 would allow D2’s surveyor to inspect the Property, and that if it was found that the existence of the Basement would affect the structural safety of the building and/or the nearby slope, D2 would be entitled to rescind the Agreement.

35.By a further letter also dated 5^th May 2003 and also stated to be “without prejudice and subject to contract”, YTC on behalf of D2 sent a cheque for the sum of $520,000 being further deposit payable to CYCLLY as stakeholder for the purchase of the Property, but emphasizing that the parties had not yet agreed upon the terms of the formal agreement for sale and purchase, and expressly reserved D2’s rights. 5^th May 2003 was the scheduled date for payment of further deposit and execution of formal agreement for sale and purchase stipulated in the Agreement.

36.By a letter dated 6^th May 2003, CYCLLY rejected YTC’s proposal to incorporate the proposal additional clauses into the formal agreement for sale and purchase.

37.By another letter also dated 6^th May 2003, CYCLLY pointed out that the Plaintiff was also D2’s agent, and that it was PW1 who approached and informed D1 that D2 was interested in buying the Property. CYCLLY further stated that prior to the signing of the Agreement, D1 had on more than one occasion explicitly told PW1 that there was no approval plan from the Building Authority in respect of the Basement which was already in existence when D1 acquired the Property, and that when PW1 attended the office of CYCLLY on 17^th April 2003 requesting D1 to sign the Agreement, their solicitor Mr. Clement Lam had again explicitly told and reminded PW1 that the Basement might be illegal. CYCLLY therefore contended that since D1 and his solicitor had already made full disclosure of the legality of the Basement to PW1 who was D2’s agent and yet D2 still entered into the agreement, D2 was not entitled to rescind the agreement.

38.By a letter dated 9^th May 2003, DW2 stated that after the site inspection on 2^nd May 2003 and the viewing of all latest available approval general building plans at Building Department, he was of the opinion that the Basement was an unauthorized building works.

39.On 10^th May 2003, DW4 attended a meeting with Mr. Ku Yue Sin (D2’s father), D2, DW3, DW2 and Mr. Szeto. In the meeting, Mr. Szeto had advised D2 and his parents that counsel’s advice was that D2 would not have a good chance of getting back the deposit from D1, but would have a good case against the estate agent. It was eventually decided that since the Basement was an illegal structure, the sale and purchase should be rescinded.

40.By his report dated 23^rd May 2003, DW2 confirmed that the Basement was an unauthorized building work. He was of the further opinion that since the Property and the building of which the Property formed part were constructed on a slope site, any unauthorized removal of soil might have an adverse effect on the existing slope.

41.DW4 proceeded to negotiate with CYCLLY for recession of the Agreement and the Supplemental Agreement, but at the same time, CTY raised requisitions on the title of the Property by a letter dated 5^th June 2003. The two solicitors exchanged correspondences on requisitions, including a letter dated 11^th June 2003 from CYCLLY to YTC. In these letters, the legality of the Basement was one of the requisitions raised. The parties maintained their respective stance, i.e. D2 said that the Plaintiff had never told him that the Basement might be an illegal structure, and D1 maintained that he had made full disclosure to the Plaintiff on more than one occasion.

42.By a letter dated 14^th June 2003 from YTC to the Plaintiff, the Plaintiff was asked to comment on D1’s allegation. YTC explicitly told the Plaintiff that this matter had “grave and serious implications on the title of the property”, and asked for a reply as soon as possible and in any event before 17^th June 2003, so that “our client [D2] can consider his position”.

43.By a letter dated 18^th June 2003 from the Legal & Complaint Section of the Plaintiff to YTC, the Plaintiff asked for copies of the letters dated 6^th May 2003 and 11^th June 2003 from CYCLLY to YTC for reference. It further stated that it was in the course of investigating the matter and would revert to YTC in due course.

44.By a letter dated 23^rd June 2003 from YTC to CYCLLY, YTC insisted that D1 had failed to answer their requisitions nos. 2(i), 3 and 8 and demanded D1 to show a good title to the Property at or before 1 p.m. on 28^th June 2003, thereby extending the completion date stated in the Agreement.

45.By a letter dated 25^th June 2003, CYCLLY maintained that all requisitions had been answered and demanded D2 to complete the sale and purchase according to the Agreement and the Supplemental Agreement.

46.By another letter dated 25^th June 2003, CYCLLY demanded D2 to complete the sale at or before 1 p.m. on 28^th June 2003.

47.By a letter dated 2^nd July 2003, YTC reiterated that D1 had failed to answer the requisitions and demanded for refund of the deposit in the sum of $750,000 paid by D2 to D1.

48.By a letter dated 3^rd July 2003 from CYCLLY to YTC and stated to be “without prejudice”, D1 agreed to refund the deposit of $750,000 to D2 in full and final settlement of the matter provided that the parties would enter into the Cancellation Agreement.

49.Up to this stage, there was still no reply from the Plaintiff to YTC’s letter dated 14^th June 2003. By another letter dated 7^th July 2003, YTC informed the Plaintiff, for the benefit of future legal proceedings that might be taken against the Plaintiff, that D1 had proposed to refund the deposit money of $750,000 to D2, and that in light of the Plaintiff’s failure to reply to the letter dated 14^th June 2003, D2 considered he had no alternative but to accept D1’s proposal.

50.By a letter dated 8^th July 2003, YTC wrote to CYCLLY accepting on behalf of D2 the terms of settlement proposed by D1.

51.The two solicitors through correspondences worked out the terms of the Cancellation Agreement. The Cancellation Agreement was executed by the parties on 15^th July 2003, and D1 returned the deposit money of $750,000 to D2 on 16^th July 2003.

52.By a letter dated 23^rd August 2003, YTC wrote to the Plaintiff, on behalf of D2, stating that if PW1 had disclosed to D2 the statements of D1 and his solicitor that the Basement might be illegal, D2 would not have proceeded with the purchase of the Property, and that D1 had as a result thereof suffered a loss of $114,124 being wasted costs for the aborted sale. YTC demanded the Plaintiff to reimburse D2.

53.By a letter dated 5^th September 2003 from Messrs. Wong & Poon (“W&P”), Solicitor for the Plaintiff, to YTC, the Plaintiff gave its reply to YTC’s letters dated 14^th June, 7^th July and 23^rd August 2003, stating that PW1 and his colleagues had made full disclosure to D2 and his attorney of all the statements made by the vendor as to the legality of the Basement, that D2 and his attorney had been advised that the vendor could not provide any supporting document in respect of the legality of the Basement, that the Basement might be illegal, and that they should seek advice from lawyer and/or surveyor. The Plaintiff denied liability to reimburse D2, and further demanded D2 and D1 to pay it commission in the sum of $150,000.

54.By a letter dated 9^th September 2003, W&P also wrote to D1 and demanded for payment of commission.

The illegal structures in the Property

55.It is common ground in the evidence that there was a servant’s room on the Ground Floor of the Property (“the servant’s room”). It was behind the kitchen on the Ground Floor and extending to the backyard of the Property. It was not disputed that the servant’s room was an illegal structure and that the Plaintiff through its employees, i.e. PW1 and Mr. Ng Kwok Kit Carsun (“PW2”) had informed D2 and DW3 of this fact.

56.It is also common ground that the Basement was underneath the Ground Floor of the Property and was connected to the Ground Floor through a staircase. At the end of the Basement there was a corridor with a gate at the end. It is not disputed by D2 and DW3 that PW1 and PW2 had told them that the gate of the Basement was opened by the registered owner himself and hence the gate might be unauthorized or illegal. However, they maintained that they were told nothing about legality of the Basement.

57.DW2’s expertise as a building surveyor has not been challenged. I have carefully considered his evidence and his report dated 23^rd May 2003. His opinion was that the Basement was an unauthorized building work, and that since the Property and the building of which it formed part were constructed on a slope site, any unauthorized removal of soil might have an adverse effect on the existing slope. His evidence in this respect is not challenged by the Plaintiff. On the contrary, it was the Plaintiff’s case that D2 and DW3 had been informed time and again that the Basement might be an illegal structure. I accept the evidence given by DW2, and find that the Basement was an illegal structure, and that due to its illegality, there was possible danger to the Property due to the unauthorized removal of soil.

D1’s instructions to PW1

58.PW1 testifies that in or about March 2003, he noted from the Plaintiff’s computer database that D1 had put up the Property for sale in the market. Before he recommended the Property to D2, he had searched for the particulars of the Property. He obtained a copy of a document dated 24^th March 2003 with the title “Info-Hotline Service On Property Age and Floor Area” from the Rating and Valuation Department in respect of the Property (“the RVD Document”), and a copy of the Floor Plans attached to the Agreement for Sale and Purchase registered by memorial number 1739783 (“the floor plans”) from the Land Registry on 24^th March 2003.

59.PW1 further testifies that from 24^th March to 1^st April 2003, he had several telephone conversations with D1, and that he had in fact visited the Property on 1^st April 2003. According to PW1, D1 informed him during his visit the following 5 points (“the 5 Points”): -

(1) the servant’s room was an illegal or unauthorized structure erected without any approval from the Building Authority;

(2) the Basement had existed before he [D1] became the owner of the Property;

(3) he [D1] did not have and could not produce any document including any approved plan from the Building Authority to show the legality of the Basement;

(4) he [D1] had no knowledge whether the Basement was an illegal structure;

(5) he [D1] had exclusive use of the Basement and other owners of Goodview Garden could not gain access or use it.

60.Under cross-examination, PW1 states that D1 had instructed him that it was a must for him to inform any prospective purchasers of the 5 Points. He also said that he had informed PW2 of the 5 Points after his first visit to the Property. He also accepted that it was a very important part of his duties to pass on this information to prospective purchasers.

61.Mr. Yeung does not challenge this part of PW1’s evidence. He accepts that D2 has no evidence and has no intention to ascribe any fault to D1. He further points out that when YTC first raised the issue of legality of the Basement with CYCLLY by letter dated 5^th May 2003, D1 promptly replied through his solicitor by letter dated 6^th May 2003 that he had made full disclosure to PW1 in essence of the 5 Points.

62.I agree with Mr. Yeung. I find, on balance of probabilities, that D1 had disclosed to PW1 the 5 Points. I also find that D1 had specifically instructed PW1 that it was imperative for PW1 to convey the 5 Points to any prospective purchaser including D2.

Alleged Non-disclosure by the Plaintiff

63.It is clear from the correspondences between solicitors acting for D1 and D2 that the sale and purchase of the Property was eventually cancelled because of two arguments between the parties. First, had D1 failed to show a good title to the Property because the Basement was an illegal structure? Second, had D1 disclosed or failed to disclose the possible illegality of the Basement to D2 through the Plaintiff?

64.Since I have found as a fact that the Basement was an illegal structure and that D1 had informed the Plaintiff through PW1 of the 5 Points, the rights and liabilities of the Plaintiff and D2 will depend on whether or not the Plaintiff had informed D2 and/or DW3 of the 5 Points. It is because if they or anyone of them had been so informed and yet D2 still entered into the Agreement and the Supplemental Agreement, he would have no right to ask for cancellation of the sale and purchase of the Property.

The issues

65.Mr. Wong submits, and I accept, that there are 5 issues: -

(1) whether the Plaintiff had informed D2 and/or DW3 that the Basement might be an illegal or unauthorized structure as disclosed by the vendor in any one of the occasions, namely, during the 2 site inspections on 5^th and 14^th April 2003, and before the execution of the agreements on 17^th April 2003;

(2) whether the Plaintiff owed a duty to obtain information in relation to legality of the Basement;

(3) whether failure to respond timely to YTC’s letters deprives the Plaintiff of its right to earn its commission or D2 is then entitled not to pay or is excused from paying the Plaintiff any commission;

(4) whether D2 had the intent to purchase the Property even though there was the Basement;

(5) quantum of D2’s loss, if any.

The 1^st issue

66.This is a factual issue to be resolved on the basis of credibility of witnesses and reliability of their evidence.

67.It is common ground in the evidence that D2 had visited the Property twice before the signing of the Agreement and the Supplemental Agreement. D2 could not recall the exact dates, but PW1 testifies that the two visits took place on 5^th April 2003 and 14^th April 2003 respectively. I see no reason why PW1’s evidence in this regard should not be accepted. I find as a fact, on balance of probabilities, that the two visits took place on the two days testified to by PW1.

First visit to the Property on 5^th April 2003

68.In this visit, only PW1 and D2 were present. PW1 testifies that during the visit, he had informed D2 of the 5 Points. He further told D2 that the floor plan did not show any basement in the Property, and advised him that the Basement might be an illegal or unauthorized structure. He also advised D2 to get his lawyer or surveyor to check all the information. He says that D2 was apparently satisfied with the Property notwithstanding what he had been told, and that D2 had further said that he was fond of playing music in a band and that he intended to use the Basement as a music room so as to prevent noises from disturbing neighbours.

69.On the other hand, D2 testifies that during the first visit, PW1 told him that there had been alterations to the servant’s room but assured him that there was no need to worry since everyone in the neighbourhood had made similar alterations. He further testifies that PW1 had told him that the gate of the Basement was opened by the registered owner, but PW1 had not said anything about the Basement being an illegal structure.

70.PW1 also testifies that after the first visit to the Property and at D2’s request, he faxed to D2 on 7^th April 2003 a copy of the floor plans, land search record of the Property that he had obtained on the same day, and the RVD Document to D2’s secretary Rebecca. He says that he believed D2 required these documents because D2 wanted to consult professionals for their advice in respect of the Property pursuant to his advice. D2 however denies that he needed the floor plans to seek professional advice, but he just wanted to show them to his mother (DW3) so as to let her know what he intended to purchase. However, the copies sent by PW1 were unclear, and he asked PW1 to send him clearer copies on about 11^th or 12^th April 2003.

Second visit to the Property on 14^th April 2003

71.It is common ground that the persons present in this visit were PW1, PW2, D2 and DW3. The evidence of PW1 and PW2 are that they had repeated the 5 Points to D2 and DW3, and that they had told them that the Basement might be an unauthorized or illegal structure. They further told D2 and DW3 that the floor plans did not show the Basement and advised them to seek the professional advice of lawyer and/or surveyor.

72.D2 and DW3 however testify that during the second visit, DW3 asked PW1 specifically where alterations had been made. PW1 then led them to the servant’s room and said that there might be an unauthorized alteration. PW1 and PW2 further showed them to the Basement, and told them that the registered owner opened the gate of the Basement. D2 and DW3 maintained that neither PW1 nor PW2 had mentioned anything about the legality of the Basement, or advised them to seek professional advice.

73.PW1 and PW2 further testify that at the end of this visit, they had handed over the floor plans, the land search record, a letter of compliance, and the RVD Document to D2 for reference. D2 however says he could not recall if PW1 had given him the floor plans and the other documents, but he was sure that nobody had drawn his attention to the fact that the floor plans did not show the Basement, thereby indicating that it might be an illegal structure. D2 says that even if PW1 had given him the floor plans, he must have misplaced them because there was no need to refer to them again since his mother had already inspected the Property.

Negotiation of the Purchase Price

74.It is common ground that after the two inspections of the Property, D2 was interested in purchasing the Property. Through PW1, D2 tried to negotiate for a lower price but D1 insisted on selling the Property at $7,500,000. Eventually D2 agreed to buy at the first demanding price.

Confirmation with D1 that the Basement might be illegal on 16^th April 2003

75.According to PW1’s evidence, he notified D1 on 16^th April 2003 that D2 had agreed to buy at the price demanded by him. He further told D1 that DW3 would sign the provisional agreement for sale and purchase on behalf of D2 since D2 would be abroad on 17^th April 2003. PW1 says that during the same conversation, he asked D1 again whether the Basement was an unauthorized or illegal structure and whether he had any document proving legality of the Basement; and D1 told him that he had no such document and he did not know whether the Basement was an unauthorized or illegal structure.

Execution of the agreements on 17^th April 2003

76.On 17^th April 2004, PW1 and PW2 went to DW3’s office and attended to her execution of D2’s Estate Agency Agreement, the Agreement and the Supplement Agreement as D2’s attorney. PW1 and PW2 testify that they had explained the three agreements to DW3 before she signed.

77.D2’s Estate Agency Agreement was prepared by PW2. PW1 and PW2 testify that this agreement was backdated to 14^th April 2003 to correspond with the date of D2’s second visit to the Property.

78.For the Supplemental Agreement, both PW1 and PW2 testify that they prepared this agreement because they thought it necessary for D2, through DW3, to declare his knowledge and acceptance of any unauthorized or illegal structure of and in the Property. They stress that before DW3 executed the Agreement and the Supplemental Agreement, they had reiterated that the servant’s room was illegal or authorized structure, and that the Basement might be an unauthorized or illegal structure. They say that DW3 well understood their explanation but had said nothing in response.

79.DW3 states in her witness statement that she could not recall on what occasion she signed D2’s Estate Agency Agreement but it should be signed immediately before her inspection of the Property. She maintains the same evidence in her testimony in Court, but under re-examination, she says that what she could remember was just that she had signed D2’s Estate Agency Agreement before signing the Agreement and the Supplemental Agreement, but she did not remember how long before.

80.On the time when D2’s Estate Agency Agreement was signed, I prefer the evidence of PW1 and PW2. It is clear that DW3 was not certain about the time when she signed the document. Furthermore, it is common ground that D2 inspected the Property together with her during the 2^nd visit. Since D2 was actually present during this inspection, there was simply no reason why D2 did not sign the document himself and left it to DW3.

81.DW3 however is adamant in saying that PW1 and PW2 had never advised or explained to her that the Supplemental Agreement covered the Basement. She said since it had not been specified in the Supplemental Agreement what illegal structures it purported to cover, she asked PW1 whether they were talking about the servant’s room and the gate inside the Basement. PW1 answered her in the affirmative and said nothing further. She also says that although it was stated in the Supplemental Agreement that “the Purchaser hereby further declares that he/she/it has been advised by the Agent the implication thereof” before signing the Agreement, she had never been advised of the implication caused by an illegally built basement on the structural safety, mortgage, insurance and resale of the Property.

82.DW3 denies under cross-examination that PW1 or PW2 had explained to her that she had the right to obtain the Property Information Form before she signed D2’s Estate Agency Agreement because she would have otherwise asked what information they referred to. She also denies that she waived the right to receive the Property Information Form after PW1 and PW2 told her that she had not asked for a similar form when she signed documents for buying property for her younger son on an earlier occasion.

Execution of the agreements by D1 on 17^th April 2003

83.PW1 and PW2 testify that after DW3 had executed the three agreements and paid the initial deposit, they went to the office of CYCLLY and met D1 and his solicitor Mr. Clement Lam. They reported that they had already related the 5 points to D2. They produced the Agreement and the Supplemental Agreement for the perusal of D2 and Mr. Lam, and D1 signed on the two agreements only after Mr. Lam had advised D1 of his rights.

D2’s aborted execution of the formal agreement on 30^th April 2003

84.On 30^th April 2003, DW4 attended D2’s office for execution of the formal agreement for sale and purchase of the Property. When D2 informed DW4 that the Property had a basement, DW4 could not find it on the floor plans. As a result, D2 did not sign the formal agreement and instructed DW4 to proceed to appoint a surveyor to inspect the Property.

Sending RVD Document by PW1 to YTC on 2^nd May 2003

85.DW4 testifies that he called PW1 on 2^nd May 2003 and questioned him about the existence of the Basement. PW1 told him that the Basement should be included in the saleable area. PW1 further told him that since the RVD Document had stated that the saleable area was 214.2 square metres (or 2,305 square feet), and since the area for other units in the vicinity of the Property was smaller, the Basement should be included in the saleable area stated in the RVD Document. DW4 then asked PW1 to fax him the document and PW1 did so accordingly.

86.PW1 however denies the truth of DW4’s evidence. He says that he faxed the RVD Document to DW4 simply because DW4 had made the request and DW4 did not tell him why he needed the document.

Surveying of the Property on 2^nd May 2003

87.It is common ground that DW2 went to the Property together with PW1 on 2^nd May 2003 for an inspection. PW1 was unable to obtain keys to gain access to the interior of the Property. Instead, and he took PW2 to a similar unit in Goodview Garden for inspection instead.

88.DW2 testifies that he had asked PW1 whether the Basement was legally constructed. PW1’s reply was that he had no information that enabled him to confirm whether it was a lawful construction. PW1 had only told him that the extension of the kitchen might be illegal. DW2 further testifies that PW1 had during this visit told him that since the demand notes for rates from the Rating and Valuation had described the Property to have an area of more than 2,000 square feet, the Basement should be included in the Property. It was because the unit they had actually inspected was 1,500 square feet in area and it had no basement. PW1 however denied the truth of DW2’s evidence. He says that he merely told DW2 that he was not sure whether or not the Basement was an authorized building work.

The meeting on 3^rd May 2003

89.This meeting took place in the office of DW3. PW2 was unable to attend due to sickness. PW1 asked PW3, his supervisor, to accompany him. DW2, DW3, DW4 and Mr. Szeto were the other participants in the meeting. D2 was not present as he was on a trip abroad.

90.Unknown to the participants in the meeting, DW2 had audio-recorded part of the meeting by using his pocket PC. The Plaintiff does not challenge the authenticity and admissibility of the recording.

91.It is common ground that the meeting can be divided into three sessions. In the first session, all persons were present, and after discussion had taken place for sometime, DW2 started the recording. In the second session, PW1 and PW3 left the meeting room, and DW3, DW2, DW4 and Mr. Szeto had a private discussion. In the third session, PW1 and PW3 joined in again. The second and third sessions were wholly recorded.

92.DW2, DW3 and DW4 all testify that during the unrecorded session, DW3 pointed out that PW1 had only told her that the servant’s room might be an illegal structure but said nothing about the Basement. They also say that PW1 in his response just repeated that he had no knowledge whether or not the Basement was illegal, and that because his lack of knowledge, he had not explained to DW3 that the Basement was an illegal structure prior to the signing of the Supplemental Agreement. They also say that when PW1 was asked if he had any document to prove that the Basement was an authorized structure, PW1 produced and referred to the RVD Document and claimed that the document supported his view that Basement was an authorized structure since the saleable area stated therein was larger than that of a similar unit in the vicinity and must therefore have included the Basement. When Mr. Szeto asked PW1 whether the Supplemental Agreement covered the servant’s room only, PW1 nodded his head to confirm his agreement.

93.On the other hand, PW1 testifies that, in the unrecorded part of the meeting, he was merely explaining to the meeting what D1 had said to him about the Basement and his own observation that the floor plans did not show the Basement. Mr. Szeto asked him whether the Supplemental Agreement covered all illegal or unauthorized structures of the Property. After he had answered in the affirmative, Mr. Szeto suddenly asked him, “Was it the servant room?” That caused him to give a quick response “yes”, but Mr. Szeto changed subject and did not ask him further whether the Basement was covered. He says that Mr. Szeto was just quoting his words out of context to support the allegation that the Supplemental Agreement covered only the servant’s room.

94.PW3 testifies that the discussion in the meeting was about whether the Basement was legal and Mr. Szeto kept on asking PW1 about floor plans. PW1 had answered him a good many times that he himself did not know if the Basement was legal because not even the registered owner himself knew the answer when he purchased the Property. He said PW1 had related to the meeting all the things that the registered owner had told him, and despite repeated answering by PW1, Mr. Szeto was still not satisfied. Upon seeing this, as PW3 testifies, he tried to help PW1 out by referring to the RVD Document and said that the saleable area of the Property was much larger than similar units in Goodview Garden; but Mr. Szeto retorted that it did not mean the Basement was legal or illegal. PW3 says that was all he had said about the RVD Document, and stresses that at no time had he ever tried to relate the legality of the Basement to the RVD Document.

Assessment of Evidence

95.The best starting point in this facts finding exercise is the audio record produced by DW2 of the meeting of 3^rd May 2003. There is no issue of its authenticity and admissibility, and the record provides the most accurate record of who had said what at the time of the recording.

96.For the recorded part of the meeting, it is common ground that it lasted for about one hour. For the unrecorded part, the parties however have differences. The Plaintiff’s witnesses say it lasted for about 30 to 45 minutes, while the defence witnesses say it lasted for about 15 minutes only.

97.In this regard, I have no hesitation to prefer the evidence of the defence. In the bills of costs prepared by YTC, it was clearly shown that two hours had been spent for this meeting. When he was shown this bill by Mr. Wong and asked whether this meeting lasted for 2 hours, DW4 answered in the affirmative, but later he said that the 2 hours in fact covered not only the meeting time but also the traveling time. I do not consider DW4’s evidence inconsistent. It was just a clarification of his earlier answer what he was led by Mr. Wong into confirming that the meeting lasted for two hours by reference to the bill of costs and when his mind was not addressed to the actual time spent on the meeting itself. In my view, bearing in mind that YTC was charging D2 on a time basis, as shown in the bill, and that the meeting was held in D2’s office, it was just reasonable for YTC to include in the bill the traveling time as well. When the traveling time was included in the two hours referred to in the bill, it must follow that it was more likely than not the meeting would not have lasted for the length of time as contended by the Plaintiff’s witnesses.

98.Furthermore, the importance of this audio record does not lie in its length, but in two respects. First, it was the best evidence of what had been said during the recorded part of the meeting. Second, it forms the undisputable basis from which inference can be drawn as to what should have been said, or perhaps more importantly what would not have been said, during the unrecorded part of the meeting. For these reasons, this audio record forms the best tool for assessing the credibility of the witnesses. I bear in mind the following matters that are apparent from the record itself.

99.First, nowhere in the recorded conversations could it be found that PW1 or PW3 had said anything to the effect that PW1 had at all material times informed D2 and/or DW3 the 5 Points or advised them to get professional advice. Not only that, there was not even a single statement or utterance from PW1 or PW3, or from the other participants of the meeting, that might have enabled this Court to infer that such kind of words had in fact been said by PW1 or PW3 during the unrecorded part of the meeting. This in my view is strange, incredible and inherently improbable if the evidence from PW1 and PW3 were true. It is because in an on-going discussion, people were speaking to one another according to the theme of their discussion. One person made certain remark, the other participants responded to it, and the whole discussion or dialogue would develop in that way. I am at a loss as to how could matters that had been discussed for 15 minutes or so (according to the defence case) or for 30 to 45 minutes (according to the Plaintiff’s case) could have vanished without a trace in the same conversation?

100.Second, it was recorded, in Row 94 of the transcripts, PW3 had said, “… Mrs. Ku [i.e. DW3], you have not … have not audio recorded …”. Judging from the content of Row 94 and the tone in which he spoke it, it is clear that PW3 did not want any part of the meeting to be audio recorded. At that point of time, of course nobody knew that DW2 was audio recording the meeting. According to PW1 and PW3, what PW1 had said in the meeting were just that he had reiterated time and again that he had related the 5 Points to D2 and DW3 at the material times, and that he had advised them to get professional advice. If their evidence were correct, they had said nothing detrimental to their interest or that of the Plaintiff. PW1 and PW3 also complain that in their evidence that PW1 had not been given a chance to express fully what he wanted to say because Mr. Szeto kept changing subjects. If so, it would have been much better to PW1 or PW3 to have an audio record of what had been said. It was because not only would there be a true and complete record of what had been said, but also their conversation could be considered and understood in its proper context. However, the behaviour of PW3 points to the other direction. In my view, if PW1 and PW3 had been telling the truth in court, I just do not understand why PW3 would feel uneasy, if not scared, that their conversations might have been recorded.

101.Third, the evidence from PW1 about what had been recorded or not recorded was not consistent with the audio record. First, he says that Row 3 of the transcripts is a record of the conversation in which he has described in paragraph 22 of his witness statement in the following terms: “During the meeting, I explained what was told to me by the 1^st Defendant in respect of the said basement and my observation that the said floor plans did not show any basement in Unit E2. I was also asked by Mr. Szeto Wai Sun whether the Supplemental Agreement covered all illegal or unauthorized structures of the Properly. In reply, I gave an affirmative answer.” He was adamant in saying that Row 3 was a record of this conversation, and he has maintained this version both in his evidence-in-chief and cross-examination. However, a perusal of Row 3 shows that Row 3 has no resemblance at all to the alleged conversation. In his witness statement, he went on to state, “Mr. Szeto Wai Sun suddenly asked, ‘Was this the servant room?’ My quick response was ‘yes’. He however did not ask me further whether the basement was covered.” According to the sequence of event as spelt out in his witness statement, this piece of conversation must have come after the conversation that he said to be Row 3. However, he admitted in cross-examination that the alleged sudden question from Mr. Szeto and his own quick response were nowhere to be found in the audio record, and he explained that this conversation must took have taken place during the unrecorded session. In my view, the excuse is just too convenient and devoid of the truth and it is flatly contradicted by the way he presents his evidence before he is challenged under cross-examination.

102.Fourth, PW1 and PW3 both say that PW1 had not been given full opportunity to explain his position and what he had said were taken out of context because Mr. Szeto was changing subject suddenly during the course of discussion. PW3 even complains that Mr. Szeto was acting “like shooting a film, and designing lines to be delivered.” However, a closer look at the transcripts will reveal that they are not telling the truth.

103.Row 2 of the transcripts, i.e. the first verbal exchange appearing on the transcripts, was clearly a summary by Mr. Szeto of what had earlier been discussed by the participants in the meeting during the unrecorded session. It was recorded that Mr. Szeto had said, “Here we are talking about, about this agreement, it concerned with the servant’s room. That was your understanding, isn’t it?” There was no doubt to me that Mr. Szeto and PW1 and others in the meeting had discussed for sometime about the effect of the Supplemental Agreement and he came to that conclusion at that point of time, i.e. the Supplemental Agreement only covered the servant’s room and not anything else. That has in my view already provided very cogent evidence to refute the evidence of PW1 and PW3 about what they allege to have been said in the unrecorded session. Mr. Szeto just could not have during an on-going discussion suddenly said something out of the blue.

104.As it appears from the recording and the transcripts, despite his own conclusion or understanding, and contrary to what PW1 and PW3 have alleged that Mr. Szeto was changing subject, Mr. Szeto had in fact given a chance to PW1 to confirm or disagree with his understanding or conclusion at that time. It is because, Mr. Szeto had gone on to say, in the same Row 2, that he would like to ask PW1 once again whether it was his [PW1’s] understanding at the material times that the Supplemental Agreement would cover the Basement so that even if the Basement was illegally built, DW3 would still accept the Property. In other words, Mr. Szeto had in fact given to PW1 another alternative, i.e. the Supplemental Agreement covering the Basement and not just the servant’s room, and asked PW1 for comment. That alternative of course would coincide with what PW1 has said in evidence about the purpose of the Supplemental Agreement.

105.If the evidence of PW1 and PW3 were true, one would have expected a simple and easy affirmative answer from PW1. However, that was not what had happened. In words not fluently phrased, PW1 uttered his answer, in Row 3, to the effect that it was his understanding that the agreement would cover everything D2 and DW3 had seen in the Property. In the context of the conversation, what he had said clearly meant that he had not explained to DW3 specifically that the Supplemental Agreement also covered the Basement, but merely using the Supplemental Agreement to cover anything in the Property that might be illegal or unauthorized. That is of course contrary to the evidence of PW1 and PW3.

106.Mr. Szeto certainly understood what PW1 had said as I do, but in order to confirm the accuracy of his understanding, he asked, in Row 5, “So, there was no explanation about the Basement being illegally built?” To that question, PW1 answered clearly and unequivocally, in Row 6, “It is because there was no solid answer to state this matter at that time.” This was clearly, in my view, an acknowledgment and acceptance of the proposition put to him by Mr. Szeto. In addition, he had gone further by providing a reason explaining why it was so, namely, he had no specific information on the legality or otherwise of the Basement.

107.Mr. Szeto followed up by saying, in Row 7 and going on into Row 9 [with PW1 confirming again while Mr. Szeto was speaking that it was correct that he had no knowledge (Row 8)] that since PW1 had no knowledge himself, that was why when he signed the Supplemental Agreement, his assumption was simply that the only illegal structure was the servant’s room, and Mr. Szeto asked PW1 again whether it was true that the subject of the Supplemental Agreement related to the servant room. This was another request for confirmation or clarification from Mr. Szeto to PW1.

108.PW1’s response in Row 10 was the utterance of a single word in Chinese “唔”, which could mean “yes” (which PW3 initially agreed to be the meaning), or just an acknowledgment by PW1 that he had heard the sentence (which PW3 said in later part of his cross-examination). But as Mr. Yeung points out, which was which is not important. What is important in this utterance was that there was no protest of what had been suggested by Mr. Szeto, i.e. the Supplemental Agreement covered only the servant’s room with the implication that it did not cover the Basement, despite he had been given ample chances, contrary to what PW1 and PW3 had said to be PW1’s stance in the unrecorded part of the meeting.

109.From the recording, it was clear that PW3 had sensed that something detrimental to the interest of the Plaintiff might have occurred at this stage. He therefore joined in the conversation by saying, in Row 12, to PW1, “Would you not, at the time of this Agreement, include the whole house, anything anyway inside that had been illegally built or altered would be covered by this Supplemental Agreement?” As Mr. Yeung has pointed out, what had really happened at this juncture of the meeting was that PW3 was trying to throw a lifeline to PW1 by suggesting another alternative. However, this suggestion was inconceivable with the allegation that there had been a prior unrecorded discussion during which PW1 had maintained firmly that the Supplemental Agreement covered the Basement. Why didn’t PW3 simply say, just as a reminder or repetition of what PW1 had just said, that the Supplemental Agreement covered the Basement as well? In my view, this suggestion clearly damaged the evidence of PW1 and PW3 about the contents of the unrecorded conversation.

110.Having heard what PW3 had said in Row 12, Mr. Szeto said, in Row 13, “That is exactly my worry, it means that … you have not advised Mrs. Ku [DW3] that the Basement was illegally built, and you would have difficulty if that were the case.” By that remark, Mr. Szeto was simply expressing his concern again that the Basement had not been covered by the Supplemental Agreement. What PW1 said next, in Row 15, was interesting. Instead of maintaining that the Supplemental Agreement would cover the Basement as that had always been explained to DW2 prior to the execution of the agreement, he said, “Hold on, Mr. Szeto, can you say again this case …”. He was asking Mr. Szeto to say once again what the case would have become. The behaviour of PW1 at that time was just incompatible with what he alleges to have occurred immediately prior to the recording.

111.In Row 16, Mr. Szeto gave PW1 the assurance that D2 and DW3 were not trying to get an excuse to repudiate the agreement because D2 liked the Property. He then gave a lengthy explanation of the case, but made it quite clear that as a professional he had a duty to make clear the situation to DW3 so that she could then decide what to do from the perspective of a consumer. He also stated clearly that his worry was that PW1 had not explained clearly that the Basement was an illegal structure. He went on to say that he had just confirmed from PW1 that he had not told DW3 that the Basement was included into the Supplemental Agreement because he himself did not know whether the Basement was illegal. In response, PW1 repeated again, in Row 17, that he had explained to D2 and DW3 that the Agreement covered everything they had seen and walked through, citing kitchen, basement, bedroom and the door of the basement as examples of the “everything”.

112.Mr. Wong relies on Rows 15 and 16 of the transcripts and submits that when D2 was trying to understand D2’s case, he was interrupted by Mr. Szeto. I cannot agree with that submission. Plainly this had not occurred. Mr. Szeto was explaining D2’s case at the invitation of PW1. He did not change subject. He said clearly that D2’s case was that the Supplemental Agreement did not cover the Basement. PW1 then had a chance to respond. But what he had said was not a rebuttal of D2’s case, but he was just trying to exonerate himself by saying that the Supplemental Agreement covered everything. But the examples he gave were surprising. He included “bedroom” as well when bedroom was never described to be part of the illegal structures. If PW1 and PW3 had only told DW3 that the Supplemental Agreement covered everything that might be illegal structures in the Property, they had just failed to make it clear and specific enough that the Supplemental Agreement would also cover the Basement, contrary to what they have said in evidence.

113.The conversation went on. In Row 30, PW3 stated that: -

“… we are also worried because Mrs. Ku is a familiar client, that this is the third time she patronizes us, and so we want to play safe, we help her check the area, ... it is that we are also worried. So, within the ambit of our knowledge, when we look at the saleable area, that thing of the colleague, in fact at that time we felt re-assured (放心). Re-assured … ”. (my translation)

114.Under cross-examination, PW3 agreed with Mr. Yeung that in Row 30, he said words and phrases including “we have tried to play safe”, “we have worries”, “we look at the saleable area”, “colleague”. He also agreed with Mr. Yeung that when he said by checking the saleable area, he meant he and his colleague had checked the RVD Document, and PW3 also agreed in the context of that conversation, he meant that having checked the saleable area or RDV Document, he was re-assured. When Mr. Yeung asked further about Row 30 on what he meant by “at that time” when he said “at that time we felt re-assured”, PW3 then said it did not particularly refer to what time. When asked, PW3 said the “colleague” referred to earlier in the sentence was PW1; and when he was asked whether it meant PW1 felt re-assured after he had checked the RVD Document, PW3 said he was only expressing his personal opinion in what he said in Row 30. Upon further probing, he said that PW1 had not said he felt safe, and what he had said was purely his personal opinion. In re-examination, he said that when he used “we/our” in Row 30, it was only when he said “our knowledge” and when he said “we were worried” that the “we/our” meant he and PW1, while all other “we/our” in Row 30 referred to him alone.

115.In my view, the evidence given by PW3 about what he had said and meant in Row 30 is just confusing and contradictory. His explanation of the use of “we/our” in Row 30 is nothing but artificial and lacks a ring of truth. His evidence is that when he said “at that time we felt reassured”, he was not referring to any particular point of time. But in the context of that dialogue, that phrase clearly referred to the time when PW1 was handling the sale and purchase transaction for D1 and D2.

116.Furthermore, according to PW3, when he referred to the saleable area as stated in the RVD Document, he was trying to help PW1 because PW1 was then subject to repeated questioning from Mr. Szeto. However, if he really wanted to help, and when as he claimed he knew nothing about this transaction until that very morning of the meeting when PW1 elicited his help since PW2 was sick, he could easily repeat what he alleges PW1 had already repeatedly said in the unrecorded part of the meeting. Common sense dictates that under those circumstances, he would not have put forward his own understanding or conjecture inconsistent with what PW1 had allegedly said, a person according to him he trusted and he was there to help.

117.In addition, it is in my view very significant to note that PW3 was correlating the “saleable area” to the problem the parties were tackling at that point of time, i.e. whether the Basement was illegally built and whether D2 and DW3 had been so advised. What PW3 was saying at that time was very clearly to the effect that after his colleague had studied the RVD Document, they felt re-assured. In light of the problem the meeting was discussing at that point of time, what PW3 meant in Row 30 could only be that after checking the RVD Document, he and his colleague (whom PW3 had identified to be PW1) felt re-assured that there was no problem with the Basement. According to the evidence, since this particular transaction was handled not by PW3 but by PW1, the only reasonable inference must be that it was PW1 who told PW3 that he felt re-assured after checking the RDV Document that the Basement was legal before PW3 could so inform the meeting. This fits in very well with the evidence of DW2 and DW4 that PW1 had told them, one after the other on 2^nd May 2003 in two separate occasions, i.e. when DW2 had the site inspection with PW1 and when DW4 asked PW1 for a copy of the RDV Document, that the saleable area of the RVD Document suggested that the Basement was included therein. Not only that, it must also be very significant to note that PW1 had not disagreed or otherwise corrected what PW3 had said in Row 30. He was there listening to the conversation, and the explanation given by PW3 clearly affected him. In my view, what had been said by PW3 and the acquiescence by PW1 clearly support the inference that PW1 had admitted that he had been thinking that the Basement was or at least could be legal because the RVD Document showed that the Property had an area much larger area than that of a normal unit in Goodview Garden, and that had led him into believing that there was no problem with the basement and hence he felt re-assured even if he had not informed D2 and DW3 that the Basement might be an illegal structure.

118.Fifth, it is also significant to note that in Row 30, PW3 offered that that if DW3 was worrying and did not want to buy, he would approach the vendor on behalf of D2 to seek a cancellation of the sale and purchase. If PW1 and PW2 had on so many occasions told D2 and DW3 that the Basement might be an illegal structure, why did PW3 make such an offer? It must be remembered that the whole purpose of signing the Supplemental Agreement, according to PW1 and PW2, was to ensure that D2 would not use the existence of any illegal structure as an excuse to repudiate the Agreement. What was at stake was a commission in the sum of $150,000. Furthermore, the Plaintiff has also a duty towards D1 to complete the sale. There was simply no reason why PW3 made that offer unless there was something wrongly done by the Plaintiff. In the whole transaction, there was only one thing they could do wrong, that is PW1 and PW2 had not prior to the signing of the Agreement and Supplemental Agreement informed D2 and DW3 that the Basement might be illegally built.

119.Having considered the audio record together with the evidence of various witnesses, for reasons aforesaid, I am of the view that the defence evidence on what had been said during the unrecorded part of the meeting must be preferred. In the meeting of 3^rd May 2003 as a whole, I find that at no time had PW1 or PW3 ever mentioned to the other persons present that PW1 and PW2 had on prior occasions advised D2 and DW3 that the Basement might be illegally built and that they should seek professional advice. Instead, I find the meeting progressed in the manner as testified to by the defence witnesses. In particular, I find that PW1 had admitted that he had only informed D2 and DW3 that the servant’s room and the gate of the Basement were illegal structures. He also admitted that he had no knowledge whether or not the Basement was legal, that that was why he did not explain to DW3 prior to the signing of the Supplemental Agreement that it covered the Basement. I also find that PW1 and PW3 had admitted that there was no such explanation because PW1 thought that the Basement might have been legal due to the unusually large saleable area disclosed by the RBV Document.

120.The importance of this finding is of course that if PW1 had admitted on 3^rd May 2003 that D2 and DW3 had not been informed that the Basement might be illegal structure, PW1 and PW2 could not have told me the truth about what had happened on 5^th, 14^th and 17^th April 2003.

121.I have not ignored the other evidence in this case.

122.First, PW1 and PW2 testify that after they had told D2 and DW3 during the second visit that the basement might be an unauthorized or illegal structure, D2 and DW3 understood what had been said, and they still liked the Property very much. If that were the case, it was in my view just inexplicable why D2 and DW3 had a sudden and abrupt change in attitude, especially after they had gone all the way by signing the three agreements, instructing solicitors to complete the deal and was in the course of obtaining a mortgage to finance the purchase. If the Plaintiff’s evidence were correct, it would mean that D2’s U-turn in attitude occurred at the time when DW4 raised with him the issue that the Basement might be an illegal structure since it was not seen in the floor plans. However, at that point of time, the fact that the Basement was not shown in the floor plans was nothing new or surprising to D2 or DW3 since they had been so informed on three occasions, and they found little problem with that, according to the evidence of PW1 and PW2. PW1 even said that D2 would like to use the Basement as a band room to play music so as not to disturb neighbours. In my view, the evidence of PW1 and PW2 simply does not fit into the factual matrix.

123.Second, PW1 and PW2 maintain that on each visit to the Property before signing of the Agreement, they had advised D2 and DW3 to get professional advice from lawyer or surveyor concerning the Basement because it did not appear in the floor plans. If their evidence were right, it was again inexplicable why D2 or DW3 had not instructed building surveyor earlier than 30^th April 2003 when DW4 told D2 that the floor plans did not show the Basement. It was because what DW4 had said to D2 was nothing different from what PW1 and PW2 had told D2, namely, the Basement was or might be an illegal structure because it could not be found in the floor plans. To say the least, D2 had undoubtedly instructed YTC by 23^rd April 2003. The bill of costs issued by YTC for their professional costs for services rendered to D2 clearly proves the date of his instruction. If D2 had been advised by PW1 and PW2 to get professional advice in respect of the Basement, there was simply no reason why D2 would not have raised that matter with Mr. Szeto and/or DW4 on 23^rd April 2003 or shortly thereafter since D2 had already instructed them to complete the sale and purchase, and he had to pay for the legal services in any event. The fact that D2 and DW3 did not seek professional advice earlier than 30^th April 2003 on the problems caused by the Basement, in my view, fits well into the factual matrix that they had never been advised by PW1 and PW2 to get professional evidence as stated in their evidence.

124.Third, both PW1 and PW2 say that they prepared the Supplemental Agreement for DW3 to sign on behalf of D2 because they thought it necessary for D2 to declare his knowledge and acceptance of the illegal structures inside the Property. The reason for so doing must be that they did not want D2 to allege falsely against them that they had not advised him of the existence of such illegal structures and use that unwarranted excuse to repudiate the Agreement. What was at stake was of course not just the interest of their other principal (D1) but also their commission in the sum of $150,000. It must therefore be obvious to anyone that the clearer the terms of the Supplemental Agreement, the better they would have protected their interest. Under these circumstances, it is just beyond my understanding why they had chosen not to set out in detail in the Supplemental Agreement the identities of those or those possible illegal structures but chose to use the vague and standardized words “as disclosed by the Vendor” on a pre-printed form. It must be obvious to anyone that the words “as disclosed by the Vendor” offered no protection to them. First, the Supplemental Agreement itself did not show what had been disclosed by PW1/PW2 to D2/DW3. Second, there was no other documentary proof to show what had been disclosed. Third, if the evidence of PW1 and PW2 were correct, it would have been beyond the control of the Plaintiff that no Property Information Form in respect of the Property had ever been prepared. They have said that D1 gave no response when he was asked to provide the Vendor’s Statement in Part 2 of the Property Information Form, and that DW2 acting on behalf of D2 has waived the right to receive it. Since there was no Property Information Form, there was just all the more reason for PW1 and PW2 to state in detail in the Supplemental Agreement what were or might be illegal structures. After all, it was not difficult to state what those illegal structures were. PW1 or PW2 could just have put down a few words like “the servant’s room, the Basement, and the gate of the Basement” and would have served their purpose for preparing the Supplemental Agreement. They had advanced no convincing reason why they had not done so. Their explanation that they feared that they would not be able to write down in the Supplemental Agreement correctly what they had told D2 and DW2 orally was nothing but an insult to intelligence. Even if they did not know how to write, they would have no difficult to write down into the Supplemental Agreement the 5 points which they said they had repeated time and again to D2 and DW3 on various occasions.

125.Fourth, PW1 agrees that it was his duty to fill in the Property Information Form for D1, and that he did prepare that Form on 7^th April 2003 for D1 to sign. He said he had sent the Form to D1 and asked D1 to sign, but D1 gave him no response. In my view, his evidence in this regard was again a misfit into the factual matrix. It is PW1’s evidence that D1 had given him clear and unequivocal instructions that all prospective purchasers had to be informed of the 5 points. If so, there was just no logical explanation why D1 did not respond to PW1’s request to sign the Property Information Form. It was just absurd to say that D1 would only instruct or allow PW1 to relate the 5 points orally to the prospective purchasers but not in writing. After all, the best way for D1 to ensure that PW1 or anyone of the Plaintiff would carry out his instruction was to fill in the Vendor’s Statement in the Property Information Form and signed it, so that D1 would have the most cogent evidence that he had disclosed the possibility that the Basement might be an illegal structure to all prospective purchasers. After all, the law provided that it was imperative to provide the Property Information Form unless the purchaser waived it, and D1 would not have anticipated or even wished the purchaser to waive the Property Information Form because he was always his intention that the purchaser would be told of the 5 Points. In addition, PW1 agrees that he could have disclosed the 5 Points by answering the first two questions in the Vendor’s Statement in the Property Information Form. In fact, that would have been the easiest thing to do because he could simply tick the box “not known” in Question 2 to say that he did not know whether there were structural additions or alterations to the Property before he became the owner of the Property.

126.Fifth, the defence case is well supported by evidence of DW2 and DW4.

127.In so far as DW2’s evidence is concerned, in respect of the visit to the Property on 2^nd May 2003 with DW2, I accept the evidence of DW2. I see no reason or motive for DW2 to lie. The veracity of DW2’s evidence was attacked on a number of bases. Mr. Wong submits that DW2’s evidence in Court is different from his witness statement. In Court, DW2 says that PW1 told him that he had “no information’ that enabled him to confirm if the Basement was legal, whereas in his witness statement, DW2 said that PW1 told him that he had “no knowledge” whether or not the Basement was an authorized building work. In my view, this was a very minor discrepancy. If PW1 had no information, surely he would have no knowledge whether the Basement was legally built or not. In my view, the important point in this part of evidence is not what exactly PW1 had informed DW2, but it was that even up till 2^nd May 2003 when DW2 asked PW1 specifically whether the Basement was illegally built, PW1 did not mention items (2) to (5) of the 5 Points to DW2, and yet he said specifically that there was an extension to the kitchen that might be illegally built. The complaint against PW1 is that he failed to disclose or pass on the 5 Points when he was specifically told by D1 to tell the prospective purchaser, or otherwise under a duty contractual or statutory to inform D2.

128.Mr. Wong also attacks DW2’s evidence on the basis that his evidence that he was instructed to inspect the Property and all defects and illegal structures was inconsistent with his letter dated 9^th May 2003 and his expert report dated 23^rd May 2003, in both of which he only dealt with the Basement. It is true that DW2 had only provided his opinion in respect of the Basement in his letter and report. However, in my view, DW1 had convincingly explained that he had simply no chance to inspect the other parts of the Property so as to decide whether they were illegally built. For the Basement, he could make a decision after it had been confirmed through checking that the Basement did not appear in any floor or assignment plans.

129.Mr. Wong also criticizes DW2 on the ground that DW2 firstly said he started the audio recording because PW1 and PW2 were evasive, but subsequently said that the recording was for his own reference. Mr. Wong asked if it was for his own reference, why didn’t he make a recording from the start? I see nothing inconsistent or unreasonable. Had PW1 and PW3 not been perceived by DW2 to be evasive, there was simply no need for him to record what were to be said during the meeting for his future reference. After all, DW2 had a role to play in this meeting, namely, he was to perform the role of an expert to determine or assist in the determination whether the Basement was legal or not, and hence his opinion would have significant influence on whether D2 and DW3 would proceed with the purchase of a property worth an enormous sum of $7.5 million. Mr. Wong also submits that there is no satisfactory account from DW2 as to why he did not inform D2’s solicitors had kept the recording to himself. But why should he? After the meeting, it appeared that PW1 and PW3 were to assist D2 and DW3 to do whatever possible either to proceed with the deal, or to cancel it and get back the deposit. By the time when the meeting was held on 10^th May 2003, the matter was still in a developing stage, and DW2 had no further involvement in the matter after submitting his report dated 23^rd May 2003.

130.Lastly, Mr. Wong submits that DW2 agreed under cross-examination that PW1 had never said that the Basement was legally built, and that PW1 had not actually said during the meeting on 3^rd May 2003 that because the saleable area in the RVD Document contained the Basement, the Basement was legal. It is further pointed out in cross-examination that in his expert report dated 23^rd May 2003, while he had recorded in paragraph 3.1.4 of his expert report dated 23^rd May 2003 that PW1 had told him during the visit on 2^nd May 2003 that “he had no idea whether the basement of the Property was an authorized building work or not”, he had not recorded that PW1 had during the same visit told him that the RVD Document had shown that the Basement was included in the saleable area as well, such piece of evidence was also absent from his witness statement. In my view, it is true that what DW1 had said under cross-examination was not exactly the same as when he had put down in his statement, i.e. PW1 produced and referred to the RVD Document and “claimed that the document supported his view that the said basement was in fact an unauthorized structure as the saleable area therein included the basement”. However, PW1 had admitted that he had expressed badly in his statement, but his evidence was that whenever Mr. Szeto and he asked PW1 questions relating to the legality of the Basement, what PW1 had done was that he just kept on referring to the RVD Document and the saleable area stated therein. Under such circumstances, in my view, DW2 can be excused from drawing the conclusion or thinking that PW1 was using the RVD Document to support his view that the Basement was legal. While PW1 did not actually say so, “actually” in the sense of “expressly”, he had certainly said so by the full implication of his actions. Furthermore, DW2 had explained clearly that when he made the expert report, his main target was on the legality of the Basement, and that he did not think that the conversation with PW1 was the most important ones. It appears to me that his explanation is logical and credible.

131.In addition, I see no reason to doubt DW2’s honesty and integrity. He is a professional, and it is his positive evidence that he has no business or social connection with D2 and the Ku’s family. In addition, when DW2 prepared his expert report dated 23^rd May 2003, he had already recorded in paragraph 3.1.4 what PW1 had told him during the visit, i.e. “he had no idea whether the basement of the Property was an authorized building work or not”. This contemporaneous record was consistent with his evidence in Court. At that point of time, DW2’s focus was clearly on the legality and structural safety of the Property, in particular the Basement, and not a civil litigation between the Plaintiff and D2, and there was no point for him to manufacture evidence at that time. After all, at that point of time, there was not the slightest indication that the Plaintiff would sue D2. I see no reason why DW2 had to manufacture evidence at that time, and I do not for a moment believe that DW2 would have predicted at that time that the Plaintiff would in September 2003 commenced a civil suit against D2.

132.In respect of the evidence of DW4, Mr. Wong seeks to cast doubt on the veracity of his evidence on the ground that while he said that YTC received instructions to act for D2 in this conveyancing transaction only on 23^rd April 2003, the land search into the Property was in fact carried out by DW4 was done on 10^th April 2003.

133.I do not consider this point damages the credibility of DW4. I accept Mr. Yeung’s submission that the land search record did not constitute evidence in contradiction of DW3’s evidence. It is clear from the land search record that it bore a reference number different from the case number assigned by YTC to D2’s file. It is also clear from DW4’s evidence that he conducted the land search not upon instruction from D2 but from Mr. Anthony Ng of Wing Lung Bank. It was clear that Mr. Anthony Ng were somehow related to D2 and DW3. According to D2, Mr. Anthony Ng whom he called uncle would help in arranging mortgage for buying the Property. DW3 had not been so specific referring to Mr. Ng, but she had said clearly that while she could not be certain about the time, she had in fact asked a bank to provide her with a price relating to the Property for reference use. Under these circumstances, it was not surprising at all that DW4 had conducted the land search on 10^th April 2003, i.e. after D2’s first visit, but before D2 or DW3 formally gave instructions to YTC to act for D2 in completing the sale and purchase.

134.The sixth factual matrix I can rely upon is that there was no reason at all why D2 and DW3 had to repudiate the Agreement at all. It was clear that after the issue of illegality of the Basement had been raised, they still tried to proceed with the sale so long as it could be proved that the Property was structurally safe. There was simply no reason for them to kick up such a big fuss for no reason at all. Their genuine intention to proceed with the sale could not be better manifested by further payment of deposit in the sum of $520,000 on 5^th May 2003 when the issue of illegality of the Basement had already arisen. If so, there was simply no reason why D2 or DW3 needed to lie about that they had never been told of the possible illegality of the Basement.

135.Mr. Wong has also criticized the evidence of D2 and DW3. What I wish to say is that I have considered all of them, but I still have no doubt about their credibility and reliability. For instance, it is said that D2 who had a degree as bachelor in architecture could not have failed to notice that the Basement was an illegal structure by reason of the fact that it did not appear on the floor plans that PW1 had supplied to him twice and by reason of the layout of the Basement. I accept D2’s evidence in this regard. He only got a bachelor degree in architecture, but that was a degree conferred in USA and he had never practiced in Hong Kong as an architect. He says that in USA, it was not really necessary to obtain approval from authority to build a basement, and one needed only to talk to a contractor. DW2 confirms that different places have different standard and requirement. For the provision of the floor plans, D2 said he required them for the sake of showing DW3 what he wanted to purchase. The first copy was blurred while his mother had already visited the Property when the plans were provided again. I see nothing absurd here. After all, what had been provided were floor plans, and there could always be a possibility that approval was given subsequently by the authority after submissions of other plans. As to who was the decision maker in buying the Property, it was clear that D2 wanted the Property to be his, but he needed to buy with the aid of down payment from his mother, though he would pay the balance through mortgage. But from his perspective, that was still his property and he made the call. For DW3, she said D2 would take her advice. No doubt she paid the down payment and there was nothing sinister in what she said in light of the family relationship. All in all, whatever points that might have been made against their evidence, they are irrelevant or insignificant points. But their evidence fits well into the whole of the factual matrix.

136.The same however cannot be said of about the evidence from PW1 and PW2. Mr. Wong has submitted that their evidence is consistent and has not been shaken under fierce cross-examination. I am afraid I don’t agree. The evidence of PW1 and PW2 might be consistent within itself and consistent with one another, but it is not compatible with all other facts in this case, not to mention the audio record that in my view completely destroys their evidence. In my view, the fact that their evidence is consistent within itself and with one another is simply a reflection that they have made up a concocted story.

137.Having heard and considered the evidence and observed the demeanour of witnesses, I have no hesitation in accepting the evidence of D2, DW2, DW3 and DW4. I find that their evidence to be a truthful reflection of the facts of this case. I reject the evidence given by PW1, PW2 and PW3. On the basis of the evidence that I accept, I find that the Plaintiff through PW1 and PW2 has failed to disclose to D2 and DW3 that the Basement might be an illegal structure. In doing so, the Plaintiff has failed to perform each of its contractual duties and statutory duties.

The 2^nd Issue

138.As to whether the Plaintiff had a duty to obtain information in relation to the legality of the Basement, Mr. Wong refers to the case of Chiu Wai Ling v. Chan Yau Chi & Another (Centaline Property Agency, Third Party) [2002] 2 HKC 154, and submits that it was wrong to ascribe the duty to verify the legality of the Basement to the Plaintiff because that would amount to asking the Plaintiff to assume the duty of a surveyor, but the Plaintiff had never received such training and was just an estate agent.

139.In Chiu Wai Ling, the plaintiff purchaser argued that the estate agent had a duty to advise him on what was essentially a title problem. His Honour Judge Lok held there was no such duty, or else the estate agent would be imposed with the duty of a solicitor. Mr. Yeung has no argument with the principle of law, but submits that the two cases are distinguishable on the facts. In the present case, the Plaintiff was never asked to perform any role other than that of an estate agent, and was merely required to obtain information relating to the Property, pass on what he had been told by D1 to D2, and advise D2 of its view on the legality of the Basement simply on the basis of the information it had obtained and what it had been told by D1.

140.I agree with Mr. Yeung’s submission. There can be no other conclusion in light of the findings on the contractual and statutory duties that the Plaintiff was bound to perform at the material times. In fact, irrespective of what D1 had told the Plaintiff about the legality of the Basement, it is the evidence of PW1 himself that by the end of March 2003 he had already had the belief that the Basement might be an authorized or illegal structure. It means that the Plaintiff had through PW1 already obtained the necessary information on the legality of the Property. The only issue is whether it had passed the information onto D2 in discharge of his duties, and it has not.

The 3rd Issue

141.D2 alleges that the Plaintiff’s failure to answer YTC’s two letters of 14^th June 2003 and 7^th July 2003 timely amounts to a breach of its contractual duties and as well as statutory duties that disentitles the Plaintiff to charge him any commission.

142.The facts pertaining to this issue are not in dispute. In the letter dated 14^th June 2003, YTC had set out the respective cases of D1 and D2 in respect of the Basement and invited the Plaintiff to comment on the difference and inconsistency, which in the gist was that D2 alleges PW1 had never told him or DW3 that the Basement was an illegal structure inside the Property whereas D1 alleges that he had directed PW1 on more than one occasion to inform prospective purchasers that the Basement might be illegal. The Plaintiff agrees that it had only sent a letter dated 18^th June 2003 to ask for the provision of reference materials, which were duly provided by YTC on the same day, and had done nothing further.

143.Mr. Wong submits that since PW1 and PW2 had already told D2 and DW3 everything that had been disclosed by D1, there was no need for further explanation of something that D2 had already known.

144.Since I have already found as a fact that the Plaintiff had not made the alleged disclosure, Mr. Wong’s submission must be rejected. Furthermore, even if my finding were wrong, it is still my view that the Plaintiff was still under both contractual and statutory duties to provide a timely answer to the said letters from YTC.

145.Clause (d) of Schedule 2 of D2’s Estate Agency Agreement provided that the Plaintiff should “assist the Purchaser in entering a binding agreement for sale and purchase with the vendor” of the Property. Mr. Yeung submits that in the context of the contract, “a binding agreement” referred therein must mean the formal agreement for sale and purchase of the Property. It follows that the Plaintiff’s contractual and statutory duties did not cease after the signing of the Agreement and the Supplemental Agreement, or on the date specified in the Agreement as the scheduled date for signing the formal sale and purchase agreement by effluxion of time. He submits that the Plaintiff’s duties only cease upon the occurrence of an event, i.e. the actual signing of the formal agreement for sale and purchase.

146.I accept Mr. Yeung’s submissions. First, it is trite law that a provisional agreement for sale and purchase of a property is only an agreement to enter into a formal agreement for sale and purchase of the property: Branca v Cobarra [1947] 1 KB 854; Chan Yock Kwong v Wong Hee Mao [1962] HKLR 480. Hence, a provisional agreement, being an agreement to agree, is not the same as an agreement for sale and purchase of a property, and the Plaintiff must therefore assist D2 to enter into the formal agreement for sale and purchase of the Property. Second, it was stipulated in Clause 1 of Schedule 3 of D2’s Estate Agency Agreement that D2 was liable to pay commission to the Plaintiff “upon the signing of the agreement for sale and purchase”. Since commission was not stated to be immediately payable upon signing of the Agreement, it must follow that the “agreement for sale and purchase” in Clause 1 of Schedule 3 can only be referring to the subsequent formal agreement for sale and purchase of the Property. Since the Plaintiff has not yet earned its commission upon signing of the Agreement, it must follow that there were further duties for it to perform. In my judgment, upon a proper interpretation of the contractual provisions of D2’s Estate Agency Agreement, the Plaintiff must perform its contractual duties, both express and implied, until such time when D1 and D2 had actually signed the formal agreement for sale and purchase.

147.At the time when the Plaintiff received the said letter dated 14^th June 2003 from YTC, its contractual duties towards D2 had not yet come to an end. When D2 through YTC asked the Plaintiff for comments, D2 was in fact calling upon the Plaintiff to perform its contractual duty to assist him in entering into the formal sale and purchase agreement, but the Plaintiff had given no response at all. In my view, it was not open to the Plaintiff to say that since PW1 and PW2 had already informed D2 and DW3 that the Basement might be illegal, it had no duty to inform D2 again. Even if PW1 and PW2 had made the disclosure, it did not follow that D2 or DW3 must have understood what had been said. Breakdown in communication caused by failure to convey a message or misunderstanding could always occur. Hence, when D2 and DW3 denied having been informed that the Basement might be illegal and asked the Plaintiff for comment, it was incumbent upon the Plaintiff to say to D2 or DW3 again that they had been so informed. The Plaintiff should make clear to D2 the facts leading to the signing of the Agreement and the Supplemental Agreement so that D2 could be in a position to decide whether or not he should insist upon the requisition in relation to the Basement, or just proceed to sign the formal sale and purchase agreement. Without providing the information to D2, the Plaintiff can hardly complain when D2 eventually cancel the sale and purchase of the Property. In addition, Mr. Yeung submits that the Plaintiff’s failure to respond timely also involved a breach of its implied contractual duties to provide services with honesty, fidelity and integrity, and to protect and promote the interest of D2. Bearing in mind the fiduciary nature of the duties owed by the Plaintiff to D2, I agree with Mr. Yeung’s submission.

148.Mr. Yeung further submits that the Plaintiff was under a statutory duty to provide to D2 upon request what D1 had told the Plaintiff. The Plaintiff was a dual agent. By virtue of section 36(1)(a)(vii)(B) of the Ordinance, the Plaintiff was under a duty to inform D2 what D1 had told it regarding the Property, unless it had been expressly instructed by D1 not to do so. The evidence is crystal clear that PW1 or PW3 had never been told by D1 to withhold information. On the contrary, it is the evidence of PW1 himself that D1 had made it a must for him to inform any prospective purchaser of the 5 Points, including the fact that the Basement might be illegal. The letters written by YTC on D2’s behalf was no doubt an express request from D2 for information. The Plaintiff’s failure to respond to the letters within a reasonable time constitutes a breach of its statutory duties.

149.In my view, failure to answer the said letters amount is a serious breach because it went to the very heart of the Agreement, i.e. the purchase of the Property. In the premises, it constitutes another ground upon which the Plaintiff is not entitled to charge D2 any commission.

150.I rule against the Plaintiff on the first three issues. I find that the Plaintiff was in breach of its contractual and statutory duties and that the breach is so fundamental and serious that the Plaintiff is not entitled to charge any commission against D2. For these reasons, the Plaintiff’s claim must be dismissed.

The Counterclaim

151.From the above analysis, I find that the Plaintiff has been in breach of its contractual duties and hence D2 can have a cause of action for breach of contract under the common law against the Plaintiff. In addition, D2 can bring an action against the Plaintiff for breach of its statutory duties. Section 36(4) of the Ordinance makes it clear that the failure of a licensed estate agent to comply with any statutory duties shall constitute a cause of action whereby damages or any other relief or remedy may be recovered or obtained in legal proceedings. It follows from my earlier findings that the Plaintiff has breached those duties.

The 4^th Issue

152.Mr. Wong contends that even if there had been breach of duties on the part of the Plaintiff, it is still necessary to consider whether the said breach has caused D2 to sustain any loss.

153.The Plaintiff contends that the loss and damage allegedly suffered by D2 represented necessary expenses which should reasonably have been incurred by D2 as a purchaser before he purchased the Property given that he had been put on inquiry as to the legality of the Basement. The short answer to this point is that the Plaintiff had not through PW1 or PW3 put D2 on inquiry before the Agreement was signed.

154.Mr. Wong further submits that although both D2 and DW3 have testified that they would not have incurred costs on investigating the legality of the Basement had they been told by PW1 or PW3 that the Basement might be an illegal structure, their evidence is inconsistent with the fact that DW3 has shown great interest in completing the sale and purchase if the Property was structurally safe, as revealed by the audio record of the private discussion among DW3 and her professional advisers during the meeting of 3^rd May 2003, that both D2 and DW3 liked the Property, and that D2 had never asked for a recession of the Agreement but raised requisitions and even extended time for D1 to answer the requisitions from 20^th June to 28^th June 2003. It is therefore Mr. Wong’s submission that the loss if any was sustained by D2, not because of the Plaintiff’s breach but because of D2’s intention to complete the purchase of the Property.

155.I do not accept the submission. First, D2 and DW3 had made it clear that had they known at the beginning that the Basement might be an illegal structure, they would have reconsidered whether or not D2 should have entered into the Agreement for the purchase of the Property and they would have moved on to consider other property. In other words, it was the Plaintiff’s breach that caused D2 to have entered into a contract that he would otherwise not have entered, and to have spent money on investigating the legality of the Basement when he needed not otherwise have incurred. The fact that D2 and DW3 still wanted to complete the sale despite learning of the illegality of the Basement is not in my view evidence that shows that D2 would have entered into the Agreement in any event had they been told before signing of the Agreement that the Basement might be illegal. As to why D2 might still proceed to purchase the Property if it was structurally safe despite the illegality of the Basement, DW3 has made it quite clear that they had already signed the provisional sale and purchase agreement, and since names had been signed to do something, ways should be tried to finish it. Under cross-examination, DW3 even raised the question to Mr. Wong whether it was still possible for her to get back refund of the deposit from the vendor after the Agreement had been signed. It is clear to me what D2 and DW3 are saying is that since they had already signed a contract, even if they would otherwise not have signed it, they should still complete it if the Property was structurally safe, especially when D2 and DW3 also liked the Property. This attitude of them was not inconsistent with their evidence that they would not have signed the Agreement in the first place had they known of the illegality of the Basement beforehand. In any event, despite costs had been spent, D2 had never had a chance to go into the Property to inspect and ascertain if it was structurally safe despite the presence of the illegal Basement, and the Plaintiff had done nothing to assist D2 in this regard.

156.Mr. Yeung points out that even if there had been other causes contributing to the loss suffered by D2, it cannot be denied that the breach by the Plaintiff was one of the effective causes. The law is clear. If a breach of contract is one of two causes, both co-operating and both of equal efficacy in causing loss to the claimant, the party responsible for the breach is liable to the claimant for the loss. The contract breaker is liable so long as his breach was an “effective” cause of his loss, and the court need not choose which cause was the more effective: Chitty on Contract, 29^th Edition, Vol. 1, paragraph 26-038. Mr. Yeung’s submission is well-founded. I find that the Plaintiff’s breach of its contractual and statutory duties towards D2 has effectively caused D2 to sustain loss and damage.

The 5^th Issue

157.D2 counterclaims against the Plaintiff for the sum of $114,124. This sum comprises $22,500 being surveyor’s fees to DW2, $20,000 being counsel fees for having conference and giving advice on the Property, and drafting related papers, and $71,624 being the costs and disbursements of legal costs to YTC.

158.Mr. Wong submits that since DW2 had already come to a positive conclusion, from the description given to him by DW2 of the layout and structure of the Basement, on 3^rd May 2003 that the Basement was illegally built on the ground that the owner could not possibly have obtained exemption from complying with the legal requirements relating to provision of windows, and the height specifications in respect of the headroom (at least 2.3 metres) and in respect of the bottom of beams to the floor (at least 2 metres), D2 should not have incurred further costs in raising requisition of title of the Property thereafter. In any event, no further costs should have been incurred after DW2 had stated his opinion in writing on 9^th May 2003 that the Basement was an illegal structure. He submits that what D2 should have done was to take steps to request for recession. He also submits that if D2 had allowed PW3 to talk to D1 to ask for return of the deposit and recession of the Agreement, much loss would have been avoided.

159.It is of course trite law that an injured party has a duty to mitigate its loss. But it is equally clear that it is for the paying party to establish that the injured party has failed to do so.

160.The Plaintiff has not alleged in the pleadings that D2 has failed to mitigate, but there is a specific requirement for that point to be pleaded: Order 18 rule 8, Rules of the District Court. Hence, on this point alone, the Plaintiff’s argument can be shut out.

161.Against the argument that D2 should not have incurred further after DW2 had positively concluded that the Basement was an illegal structure, Mr. Yeung submits that this argument is totally misconceived. He submits that if requisitions of title had not been raised, D2 would have been regarded to have accepted the vendor’s title, and that the mere existence of illegal structure might not be a blot on title and that the purchaser could waive it. I accept Mr. Yeung’s argument. What he has submitted is not only supported by the evidence of DW4 but also the general principle of law.

162.Furthermore, the facts clearly reveal that D1 had all along been pressing for completion of the sale and purchase. It was always D1’s stance that he had made full disclosure of the illegality of the Basement to D2 through PW1, and hence there was no need for him to prove that the Basement was not an illegal structure. Hence, if D2 had not through YTC insisted upon raising the requisition concerning the Basement, D1 would never have offered to cancel the Agreement. From the correspondences between the solicitors acting for D1 and D2, after all the requisitions were raised, it was clear that D1 had answered everything except Requisitions Nos. 2(i), 3 and 8, all of which related to the Basement. In my view, the irresistible inference is that D1 cancelled the sale because he knew that he could not prove the legality of the Basement, a matter that had been insisting upon by D2, and that D1 did not want to have a law suit with D2 to determine his rights and liabilities when the outcome of that law suit did not depend on what he had done or failed to do but depending on what PW1 had done or failed to do. It is therefore clear to me that had D2 not been pressing on this requisition in respect of the Basement, he could never have the Agreement cancelled. I find that the costs had been properly incurred.

163.As to the argument that D2 should have allowed PW3 to speak to D1 and ask for a recession of the Agreement, this point is devoid of merit at all. There is no evidence at all any loss could have been avoided. Even Mr. Wong has to concede that nobody knows what D1’s reaction would be even if PW3 did approach him for such a purpose.

164.I find that the whole sum of $114,214 was costs wasted as a result of the Plaintiff’s breach. I find that the whole sum is recoverable by D2 against the Plaintiff.

Order

165.For reasons aforesaid, I make the following orders: -

(1) The Plaintiff’s claim against D2 is dismissed.

(2) Judgment be entered for D2 against the Plaintiff in the sum of $114,214 being the sum counterclaim herein, with interest thereon at the judgment rate from 31^st October 2003 to the date of payment.

(3) Costs of the Plaintiff’s claim and the Defendant’s Counterclaim to be paid by the Plaintiff to D2, to be taxed if not agreed, with certificate for counsel. This is an Order nisi that will become absolute after 14 days from the date of handing down of this judgment.

W. K. Kwok
Deputy District Judge

Mr. Kenneth Y. F. Wong, instructed by Messrs. Wong & Poon, for the Plaintiff.

Mr. Keith K. H. Yeung, instructed by Messrs. Szeto & Lee, for D2.

Cites 1 case

Cases cited in this judgment

Chiu Wai Ling v. Chan Yau Chi and Another

[2002] 2 HKC 154

District Court01 Mar 2002

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