Win Wave Industrial Ltd v. Gosbon Industries Ltd and Others
Read the full judgment text of DCCJ 209/2007 on BabelCite. This District Court judgment was delivered on 27 April 2009.
1. In August 2005, the Plaintiff (Win Wave) and the 1 st Defendant (Gosbon) entered into a provisional agreement whereby Gosbon agreed to sell and Win Wave agreed to buy the property known as Bowling Alley, Melody Garden, No.2 Wu Chui Road, Tuen Mun, New Territories (the Estate). The deal was eventually aborted.
Cites 5 cases
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DCCJ 209/2007 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 209 OF 2007 ---------------------- BETWEEN
---------------------- Coram: His Hon Judge Leung in court Date of hearing: 10-14 November 2008 Date of judgment: 27 April 2009 JUDGMENT 1.In August 2005, the Plaintiff (Win Wave) and the 1st Defendant (Gosbon) entered into a provisional agreement whereby Gosbon agreed to sell and Win Wave agreed to buy the property known as Bowling Alley, Melody Garden, No.2 Wu Chui Road, Tuen Mun, New Territories (the Estate). The deal was eventually aborted. 2.Lam is the shareholder and director of Win Wave and Lau is the shareholder and director of Gosbon responsible for the deal. But they had never met as at all times, the 2nd Defendant (Centaline) and Centaline CIS, which is operated by Centaline, acted as the intermediaries between them. The 3rd Defendant (Chung) of Centaline (CIS) and the 4th Defendant (Lai) of Centaline, were two of the estate agents involved. 3.Win Wave called off the deal on the basis of misrepresentations on the part of Gosbon through the estate agents. Win Wave claims for rescission of the provisional agreement and the return of the initial deposit paid. It also claims compensation for wasted conveyancing costs and expenses. 4.Win Wave alleges negligence, including negligent misstatement, on the part of the estate agents for which Centaline is responsible. 5.Gosbon of one part and Centaline and its estate agents of the other part also claim against each other by way of third party notices seeking contribution or indemnity in the event that Win Wave establishes liability against either of these them. 6.This case came for trial before another court last June. As a result of the re-amendment of the statement of claim when the trial began, the court adjourned the trial. BACKGROUND 7.The property used to be a bowling centre at one time and occupied the whole 1st Floor of the low commercial block of the Estate with an area of slightly over 24,000 square feet. The bowling business had ceased and the property had also changed hands until Gosbon became the owner of the property in March 2004. Months later, Gosbon also offered the property for sale at the price of HK$18,000,000 through Centaline CIS, which is Centaline’s branch specialised in dealing with commercial and industrial properties. 8.Lai of Centaline noticed the advertisement of the property being marketed by Centaline CIS. Lai contacted Chung and asked about the property. On 25 August 2005, Lai contacted Lee, whom he has known for years, and enquired if Lee would be interested in the property. Arrangement was then made for Lee to view the property on the following day. Lee is a friend of Lam. Believing that Lam might be interested in acquiring the property for investment, Lee also informed Lam of what he learned about the property. 9.On 26 August 2005, Lee viewed the property. Lai brought along Connie Wong and Dennis Wong of Centaline. From Centaline CIS, Chung came with her superior, Hui. The property had apparently undergone some interior decoration work by then. Noticing the peculiar interior layout of the property, namely, the space without partitions or pillars and the existence of two levels, Lee enquired and Chung explained that the property used to be a bowling centre but, according to the vendor, the user had been changed to commercial purpose. 10.On 28 August 2005, Lee viewed the property for the second time. This time Lam also came. Except for Hui, the other estate agents were present as before. Afterwards, the party had a discussion at a nearby café. One of the matters discussed so far was the user of the property. During the discussion, Chung also produced to Lam and Lee copies of the following documents:
11.In the evening of 30 August 2005, Connie Wong, Dennis Wong and Lai contacted Lam. They then met with Lam and Lee. That night, Lam signed the provisional agreement for and on behalf of Win Wave for the purchase of the property at HK$17,000,000 and drew a cheque for the initial deposit of HK$500,000 and let the agents submit the same as an offer to Gosbon. 12.In the small hours of the following day, i.e., 31 August 2005, Lai telephoned Lam that the vendor had agreed to conclude the deal. Later on the same day, Lee and Lam met with Connie Wong, Dennis Wong and Lai when Lam was given the provisional agreement. It was dated 30 August 2005, signed by Lau for and on behalf of Gosbon and by Dennis Wong for and on behalf of Centaline. 13.This was a standard provisional agreement of Centaline. It contained the following terms:
14.On 2 September 2005, Chung deposited Win Wave’s cheque for the initial deposit into the bank account of Gosbon, at the request of Lau. 15.In the following 2 weeks, Win Wave and Gosbon, through their respective solicitors, engaged in correspondence regarding the formal agreement to be entered into. Win Wave tendered the cheque for the payment of the HK$1,200,000 further deposit on condition of the signing of the formal agreement. However, the parties failed to agree on the terms of the formal agreement and the same was not signed by the contractual deadline of 15 September 2005. 16.In the mean time, upon legal advice, Lam and Lee became concerned about the status of Gosbon’s application for change of the user of the property. Win Wave decided to call off the deal. Win Wave stopped the payment of its cheque to Gosbon for the further deposit. Lam and Lee confronted Chung, Connie Wong, Dennis Wong and Lai. The estate agents also met with Lau afterwards. Lam, Lee and Lai had also personally attended the DLO, the Architects as well as the management office of the estate to verify the status of the change of user. 17.By letter dated 21 September 2005 from its solicitors to Gosbon’s solicitors, Win Wave put on record its complaint about wilful misrepresentation about the user of the property by Gosbon through the estate agents. Win Wave sought to rescind the provisional agreement and claimed for the return of the initial deposit paid. In its reply through solicitors on 23 September 2006, Gosbon considered Win Wave to be in repudiatory breach of the provisional agreement and sought to forfeit the deposit paid. It has also re-sold the property subsequently. 18.Lam had also filed reports with the police and Estate Agents Authority (EAA). 19.The above is largely undisputed. Considering the evidence, I also find the same to be the facts. ISSUES 20.There are the following issues to be determined:
21.The persons involved in this deal highlighted above gave evidence in court. THE REPRESENTATIONS 22.According to the pleading, on 28 August 2005, the estate agents made to Lam and Lee the following representations:
I shall collectively refer to the alleged representations as the representations. WHETHER THE REPRESENTATIONS WERE MADE 23.Lee gave evidence that during the 1st viewing of the property on 26 August 2005, upon his enquiry about the peculiar interior layout of the property, Chung represented to him that the property was formerly used as a bowling centre but according to the vendor, the user had been changed to commercial purpose. Chung admitted that in her evidence. 24.Chung admitted that she also promised Lee to seek from the vendor documents regarding the change of user of the property. She did so in the following morning. She talked to Lau on the telephone. As a result, Lau of Gosbon sent the documents mentioned above by fax to Chung. According to Chung and Lai, she then forwarded the documents to Lai for Lee. 25.Chung was also positive that during the meeting at the café after the 2nd viewing of the property on 28 August 2005, she informed Lee and Lam that the DLO had indicated no objection to the change of user and that according to the vendor, the user had been changed to commercial purpose. The documents mentioned above were produced and referred to. They also discussed the various possible uses that the property could be put into. Connie Wong and Lai confirmed this in court. 26.Considering the evidence, I am satisfied that the representations, both verbal and by conduct, were made. There could also be no dispute that Chung had represented to Lam and Lee that the user of the property had been changed. THE FALSITY 27.By pleading, Win Wave contends that the representations independently or collectively meant that the DLO had consented to or approved the application for change of user of the property; and that the property could forthwith be used for general commercial purpose. 28.The pleading went on to elaborate what “forthwith” meant, i.e., that there would be no need to deal with various other matters or to seek consent from various government authorities (which might include the payment of premium and administrative fee to the DLO, the seeking of consent from the Buildings Department (BD) in relation to the user restriction stated in the relevant occupation permit) or the owners of the estate to alter any user restrictions contained in the deed of mutual covenants governing the property (DMC). 29.Win Wave contends that the representations were in fact untrue in that Gosbon’s application for change of the user of the property had yet to be approved and therefore the property could not be used for general commercial purpose forthwith. 30.Reference was made to a subsequent letter dated 11 April 2005 which was also the last letter from the DLO to the Architects regarding Gosbon’s application for change of user of the property. The letter read as follows:
31.Reference was also made to the DMC (clause 22(a)(2)):
32.The above provision in the DMC was similar in effect to the Conditions of Sale in the Government Lease (clause 8(b)). According to the Occupation Permit, the property was described as “a bowling centre for non-domestic use”. 33.Mr Wong for Gosbon questioned the meaning of the representations alleged by Win Wave. He referred to the fact that the pleaded case of Win Wave before the last amendment was that the DLO had rejected the application for the change of user of the property. This was only last amended to become that the DLO had yet to approve the application. 34.I do not doubt that prior to the last amendment of the pleading, Lee and Lam, and Win Wave, had been given to understand that the application for the change of user had been rejected subsequent to the 16 November 2004 letter from the DLO. This was apparent from Lam’s statements to the police and the EAA. This, I accept, was their understanding after their meeting with the Architects, the DLO and the management office. By then, Lam and Lee were yet to be provided with the 11 April 2005 letter from the DLO. Though its original pleading referred to that letter, Win Wave in fact did not have that letter until its solicitors asked for it from Gosbon’s solicitors in June 2007. Hence the last amendment of the pleading. 35.In any event, it matters not whether the application for the change of user had been rejected or yet to be approved by the DLO. The key is whether at the time when the representations were made, the property was still restricted to bowling centre or not. Rejection or lack of approval of the application for the change of user would have the same effect, namely, that the property could not be used for other commercial purpose as represented by the estate agents. 36.Mr Wong also submitted that the letter dated 16 November 2004 from the DLO merely stated that the DLO had no objection to the application for change of user. This, properly construed, could not be understood to mean consent or approval as Win Wave contends. In my view, it is unrealistic to consider the 16 November 2004 letter in isolation. The conduct of providing this documentary evidence was meant by Chung and understood by Lee and Lam to be reinforcement of the previous verbal representations within a limited time span. 37.Mr Wong also argued that even if the user were changed, one should understand that there would still be other requirements to be fulfilled, such as the consent of the BD for any proposed structural change when the property was, say, converted into various shop premises. This may be true. But this really had nothing to do with whether at the time of the representations, the permitted user of the property was still restricted to that as a bowling centre as opposed to other commercial uses. The fact that at the time when the representations were made, even the DLO’s consent was yet to be given and would be subject to conditions to be fulfilled would have meant that the user of the property remained so restricted . 38.I accept that the representations could reasonably be understood by a potential purchaser concerned, such as Lam (on behalf of Win Wave), and Lee to mean that the property could, rather than might, be used for general commercial purposes. The revelation of the fact that the change had yet to be approved must mean that the representations were untrue at the time of their making. INDUCEMENT 39.When a person makes a material representation to another to induce him to enter into a contract, and the other enters into that contract, it is not sufficient to say that the party to whom the representation is made does not prove that he entered into the contract, relying upon the representation. If it is a material representation calculated to induce him to enter into a contract, it is an inference of law that he was induced by the representation to enter into it: see Redgrave v Hurd (1881) 20 Ch D 1 at p.21, per Jessel MR. 40.Where a person seeks to rescind a contract on the ground of misrepresentation, it is not necessary for him to prove that if the misrepresentation had not been made, he would not have made the contract. It is sufficient if there is evidence to show that it was materially influenced by the misrepresentation: see Green Park Properties Ltd v Dorku Ltd [2000] 2 HKLRD 400 at 410 (Note: this part of the decision was not disturbed on the subsequent appeals). 41.It was Lee who raised the issue of the user during the 1st viewing of the property and asked for support. Pertinent to that, Chung sought confirmation from Lau and obtained copies of the documents. Chung forwarded the documents to Lai and ensured that Lai forwarded the same to Lee. She armed herself with copies of the documents to attend the 2nd viewing of the property and the subsequent meeting clearly with a view to referring to them as support of the situation that she had been representing to Lee and Lam by then. 42.Lam said, and I accept, that if she had known that the user of the property was still restricted to bowling centre, she would not have committed to the deal. The concern of Lam and Lee about the truth of the representations also led them to investigate and to attend the DLO, the Architects and the management office of the property, upon obtaining legal advice. Lai, who knew Lee and first introduced Lee to the property, also agreed in court that the change of user was important to Lam. 43.In my view, there could be no doubt that the materiality and the existence of inducement in the representations. RELIANCE 44.Miss Leung for the estate agents somehow construed Lee’s enquiry and request to Chung for documents relating to the change user as an indication of his disbelief in what Chung said to him during the 1st viewing of the property. She suggested that therefore Lee and Lam did not rely on the estate agents. I do not see the logic of this argument. 45.It was suggested that Lam and Lee were experienced investors. It was also suggested that Lam and Lee should have exercised due diligence to ascertain independently whether the property could be converted to general commercial use. They ought to have enquired or consulted their own lawyers before agreeing. 46.Reference was made to their personal background. Lee was educated up to Form 5. He is the governor of 2 primary schools. But considering the evidence, I would not describe him as an experienced property investor at all, not to mention in commercial property. Lam was educated up to Form 5. She is a part-time teacher of etiquette in a primary school. She admitted having previous property investment experience but not in commercial property. She has possessed an estate agent’s licence since 2002 but has never professed as such. Neither Lee nor Lam has encountered the issue of change of land user in their experience before. I find these to be the facts. 47.In order to take away the representee’s title to be relieved from the contract on the ground that the representation is untrue, it must be shown either that he had knowledge of the facts contrary to the representation, or that he stated in terms, or showed clearly by his conduct, that he did not rely on the representation: see Redgrave (above) at p.21. If the representee does not know that the representation was untrue, it is no defence to an action for rescission that he might have discovered the falsity of the representation by the exercise of reasonable care: see Green Park (above) at 410. 48.In Redgrave (above) at p.14, Jessel MR gave an example in a context similar to the present case:
49.There were no contrary circumstances that would have raised suspicion by Lam or Lee about the truth of the representations. While the 16 November 2004 letter from the DLO merely stated that the DLO had no objection to the change of user, the letter also did not contradict the verbal representations that the estate agents had been making by the time when the letter was produced. It might have been different if the 11 April 2005 letter from the DLO was also supplied, as this later letter would have diluted the combined effect of the verbal representations and the 16 November 2004 letter on Lee and Lam. 50.There was dispute as to whether Chung also provided a copy of the DMC to Lam and Lee during their meeting at the café after the 2nd viewing of the property on 28 August 2005. Considering the evidence including that of Chung, Lai, Lam and Lee as well as Lee’ statement to the EAA, I do not consider that Lee was inconsistent in his evidence as to whether the DMC was provided or explained as suggested. In view of the above discussion, I also do not consider there is much point in the suggestion that Lam and Lee could have studied the DMC or sought independent legal advice on it before committing to the deal: see also Welltech Investment Limited v Easy Fair Industries Limited, HCA A5853/1994, 10 April 1996 at p.14. WHETHER GOSBON WAS BOUND BY THE REPRESENTATIONS 51.What was discussed above affected Gosbon only if Gosbon was bound by the representations made by the estate agents. Lau was not privy to the conversation between the estate agents and Lee and Lam on any of those occasions. Gosbon contends that if the estate agents indeed made the representations as alleged by Win Wave, the estate agents did not have authority to make them. Further, what the estate agents told Lee and Lam were not what Lau told Chung. Therefore Gosbon was not bound by the representations. 52.In Cheng Kwok Fai v Mok Yiu Wah Peter [1990] 2 HKLR 440, the peculiar nature of estate agency in Hong Kong was explained (at p.445). An agent in Hong Kong acts as a broker usually taking commission from both the vendor and the purchaser. The agent may have different roles at different stages of the negotiation leading to the provisional agreement. Whether a misrepresentation made by an agent to a purchaser will be held to have been made on the vendor’s behalf is essentially a question of facts: see also Green Park (above) at 417J and Jopard Holdings Ltd v Ladefaith Ltd & Anor [2005] 1 HKLRD 317 at 324H-325G. 53.The distinctive facts of Cheng Kwok Fu were that the vendor had not given the agent any authority to represent to the purchaser about the area of the property; and had not held the agent out as having such authority. When supplying the sketch out of his own record for the purchaser’s information, the agent was acting as the purchaser’s agent in the circumstances. 54.As mentioned above, Chung admitted that she talked to Lau on the day after the 1st viewing of the property with a view to seeking confirmation of the change of user of the property and documentary support. At the request of Chung, Lau sent her the documents in relation to the change of user of the property obviously to enable her to address the concern raised by the potential purchaser about the change of user of the property the day before. 55.As Mr Vaughan submitted, the whole context in which the issue of user of the property was discussed was in the form of the estate agents passing on information provided by the vendor to the purchaser. In making the representations during and after the 2nd viewing of the property, including the production of the documents to Lam and Lee, the estate agents were acting as agents for Gosbon. The facts of the present case are materially different from those of Cheng Kwok Fai (above). 56.Mr Wong for Gosbon argued that the representations were made outside the scope of the estate agents’ authority and Gosbon was not bound by the act of the estate agents. This had to do with what Lau told Chung on 27 August 2004. This is a factual dispute. I reserve my discussion regarding this dispute below. The reason is that for the purpose of deciding Chung’s authority, what matters was her authority as apparent to Lee and Lam when the representations were made. Gosbon was not bound only if the circumstances were that Lee and Lam either knew or was put on enquiry as to Chung’s authority. 57.On 28 August 2004, Chung returned with, according to her, the confirmation from the vendor that the user of the property had been changed. In support, the documents supplied by Lau including the correspondence between the Architects and the DLO were produced. There can be no doubt that Gosbon put the estate agents in a position by arming them with the documents to communicate with Win Wave on the issue of change of user. 58.Mr Wong for Gosbon argued that the documents supplied clearly stated that the DLO had no objection to the change of user and nothing more. Therefore Lee and Lam ought to be put on enquiry as to Chung’s authority to suggest that the user had already been changed. By reason of the above discussion of how the representations could reasonably be understood and the question of reliance, I disagree with Mr Wong. 59.I find that Chung had the requisite authority to make the representations on behalf of Gosbon and did make the representations as Gosbon’s agent. FRAUDULENT MISREPRESENTATIONS 60.The tort of deceit is established if it is proved that:
61.Mr Wong for Gosbon emphasized the standard of proof of deceit. In my view, this does not mean that where a serious allegation such as fraudulent misrepresentation is made, the standard of proof required is higher than the civil standard. It only means that strong evidence is required to establish its occurrence on the balance of probabilities: see Re H (minors) [1996] AC 563 referred to in Phipson on Evidence (15th ed) at 4-36. 62.This has to do with the dispute between Gosbon and the estate agents as to what Lau actually said in answering Chung’s enquiry about the change of user of the property on 27 August 2005. 63.According to Chung, she telephoned Lau in the morning of 27 August 2005 to enquire if the property could be used for commercial purposes. Lau replied in the affirmative. She understood that the change of user of the property had been completed (or in Chinese “攪掂晒”). Mr Vaughan for Win Wave and Miss Leung for the estate agents pointed out that Lau had withheld the last letter dated 11 April 2005 from the DLO. 64.According to Lau, he explained to Chung that his company had engaged architects to apply to the DLO for the change of user and that the DLO had no objection subject to some requirements to be fulfilled. He had no idea how Chung would have understood that the user had already been changed. In his statement, Lau was silent as to why the 11 April 2005 letter from the DLO was not among the documents that he supplied to Chung on 27 August 2005. 65.In court, Lau explained that he did not have this last letter dated 11 April 2005 from the DLO at the time. He further explained that the Architects had previously sent him the documents including the 16 November 2004 letter from the DLO because they were important. He suggested that unlike a letter of approval or non-objection, the 11 April 2005 letter was not important as this merely specified the things to work on. The alleged differentiation in terms of importance is hard to understand. The fact was that the Architects had sent to Gosbon copies of their correspondence with the various authorities without such alleged differentiation. Even Lau admitted in court that he had a file of these documents. 66.But Lau went on to suggest that the Architects had informed him of the contents of that letter. Lau said that he told Chung the contents of the 11 April 2005 letter. His evidence in court suggested that he was actually able to tell Chung each and every possible condition suggested by the DLO in this April letter, notwithstanding the lack of this letter in his hands when he talked to Chung. 67.In other words, though Lau considered that the 11 April 2005 letter was not important, at least relative to the 16 November 2004 letter, the Architects had somehow informed him of its contents in detail. Lau also somehow memorised the contents of the letter in detail. In answering Chung’s telephone enquiry, he found it necessary and was able to relay the contents of the letter to Chung but did not find it necessary to ask for a copy of this letter from the Architects. All these are difficult to understand. 68.If what Lau said were true, Chung would have at least expected this letter containing these requirements too from Lau after their telephone conversation. If Lau were as clear about the details of his application for the change of user as he alleged, there would have been no chance for Chung to misunderstand what Lau told her. She confirmed in court, and I accept, that this telephone conversation was in fact a brief one. 69.Mr Wong suggested that Chung was influenced by what she gathered from Centaline’s database to believe and therefore to say to Lee and Lam that the user of the property had been changed. The database, Mr Wong submitted, was full of errors and unreliable. In court, Lau suggested that some of the data were fabricated. 70.Chung admitted that what she said to Lee during the 1st viewing of the property was based on what she gathered from her company’s database in the computer. Chung explained that the database contained the inputs by her colleagues in the marketing division. In respect of the property, the computer printouts of the data entries made during the period between 2002 and 2006 were produced. 71.The database showed that the property had changed hands during this period while the issue of change of user of the property had been mentioned from time to time. Between early 2004 when Gosbon became the owner of the property and August 2005, there were various entries of the information obtained Gosbon with some from Lau. The last one relating to the change of user of the property was dated late June and mid-July 2005 suggesting that the users of the property had already been changed to commercial use (or in Chinese “已改了商業用途”). 72.I accept these data entries probably represented the understanding by their makers. However, the data recorded that Lau apparently talked to different agents who made these entries on different dates. Chances of all of them having made mistakes or misunderstood Lau were, in my view, not high. Having said that, I think that in view of my discussion of the evidence in respect of the conversation between Chung and Lau on 27 August 2005, whether the database was accurate and could be substantially relied on is not really determinative. 73.Mr Wong also submitted that there was no reason for Lau to misrepresent the situation because Gosbon could have considered selling the property to another potential purchaser at the time. That other potential purchaser he referred to was the church body that had been negotiating with Gosbon. There was a letter from the church body to the owners’ committee of the Estate regarding its negotiation with the vendor for the purchase of the property. However that was dated as early as May 2005. Curiously, there is no evidence as to whether, and if yes, how the issue of the user restriction would have been addressed by that body and Gosbon. But according to Centaline’s database, Lau indicated in about mid-July 2005 that the negotiation with the church body was about to conclude at the price of HK$18,000,000. Yet no deal was concluded and the fact was that at the end of August 2005, Gosbon agreed to sell the property to Win Wave at HK$1,000,000 less. I really doubt how realistic such negotiation between Gosbon and that church body would have turned out to be. 74.I find Lau’s evidence of his reference to the contents of the 11 April 2005 letter during his telephone conversation with Chung on 27 August 2005 was a mere afterthought. If Lau had explained Gosbon’s application for the change of user in such detail as he alleged, it should have become clear to Chung that her understanding from Centaline’s database would have been inaccurate. There would have been not much room for Chung to misunderstand (any more) as Mr Wong suggested. 75.I am also not convinced that Chung somehow ventured to misrepresent what Lau told her to Lee and Lam. Indeed the commission from the deal would be decent, yet eagerness to bring Lam to a deal could not explain the taking an obvious risk of future dispute that would work against them. As it turned out, report was filed not only with the EAA but also with the police. In the absence of a successful deal, no commission had in fact been paid either. 76.I accept Chung’s evidence regarding what was said between her and Lau during that brief telephone conversation on 27 August 2005. I find that the fraudulent misrepresentation is proved. WHETHER THE REPRESENTATIONS WERE SUPERSEDED BY THE PROVISIONAL AGREEMENT 77.Could Gosbon take advantage of clause 13 of the provisional agreement (above) which is what is known as an entire agreement clause? 78.Section 4 of the Misrepresentation Ordinance, Cap.284 provides that:
79.Section 3(1) of Cap. 71 provides that:
80.The only dispute in the present case lies in whether Gosbon shows that the reasonableness test is satisfied. 81.It is not apparent that the parties to the deal were in unequal bargaining position. Misrepresentation could come from either or both parties. A clause like clause 13 is supposed to operate for the benefit of both parties. There was nothing to prevent Lam from suggesting deletion of clause 13 if she was concerned whether the clause would operate against her. There was also nothing to prevent Lam from stipulating in the agreement the user of the property being sold and purchased. After all, she was supposed to sign the agreement and to draw the cheque for the initial deposit and let the estate agents to tender as her offer to the vendor. The terms were therefore not proposed or dictated by Gosbon. 82.Mr Vaughan submitted that clause 13 is against the letter and the spirit of clause 3.3 of the Code of Ethics promulgated by the EAA which states that estate agents should protect their clients against fraud, misrepresentation or any unethical practices in connection with real estate transactions. I do not see how the operation of clause 13 is inevitably incompatible with the discharge of the duty of the estate agent to protect their clients against the misfeasance stipulated under clause 3.3 of the Code of Ethics as alleged. Exactly because of the inclusion of the entire agreement clause like clause 13, the estate agent’ discharge of his or her duty under clause 3.3 of the Code of Ethics becomes more important. 83.The most material circumstances which, Mr Vaughan submitted, were or ought reasonably to have been known to or in the contemplation of the parties when the contract was made predominately were the enquiries made of the vendor through the agents regarding the change of user, and the vendor’s knowledge that the purchaser was requiring information about the status of the application for change of user. He submitted that if the vendor were eventually allowed to rely on clause 13, it would defeat the whole purpose of a potential purchaser requiring specific information from the vendor before signing an agreement. At least in the present case, specific enquiries were made, as to which the vendor had intimated he would provide information. 84.In commenting on the reasonableness test, Litton NPJ in Green Park [2001] 3 HKLRD 760 (CFA) at 766D-767F expressed reservation about the approach of the learned Judge in the first instance in this respect. What the learned Judge considered were factors bearing on the seriousness of the vendor’s conduct leading to the representation being made by the estate agents. His Lordship effectively disagreed and reiterated that the circumstances referred to in section 3(1) of Cap. 71 should include those surrounding real estate dealings in Hong Kong known to both parties bearing on whether it was fair and reasonable for a term like clause 13 (in the present case) to be included in a standard form of provisional agreement put forward by real estate agents for the parties’ signature. 85.Though what Litton NPJ spoke of was not a decided issue as such in Green Park, I respectfully agree. However, I do not understand His Lordship to be ruling out special consideration in the case of proof of fraud. In my view, once fraudulent misrepresentation is established on the part of a party to the agreement, that party cannot rely on an entire agreement clause like the present one. WHETHER CENTALINE WAS NEGLIGENT 86.The pleaded case against Centaline, Chung and Lai is (1) negligent misstatement; (2) breach of implied contractual duty of care; and (3) generally negligence. Pleading point 87.Miss Leung for Centaline and the estate agents took issue with Win Wave’s pleading. She submitted that the duty of care giving rise to liability for negligent misstatement would exist only when there is the necessary special relationship of proximity between the parties. She argued that there is no plea as to the circumstances which gave rise to such special relationship of proximity between the estate agents and Win Wave in the present case. 88.The basis for the duty that could give rise to the liability for negligent misstatement and economic loss should not be in dispute: see Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; Caparo Industries v Dickman [1990] 2 AC 605 at 638. But I see no merits in Miss Leung’s challenge in respect of Win Wave’s pleading. 89.The special relationship exists if where a person is so placed that others could reasonably rely upon his judgment or his skill or his ability to make careful inquiry, such person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows, or should know, will place reliance on it, then a duty of care will arise: see Hedley Byrne (above) at 514, per Lord Hodson. As a matter of pleading, what need to be particularised are material facts capable of establishing such relationship and hence the duty: see (if necessary) Hydrocarbons Great Britain v Cammell Larid Shipbuilders Ltd (1991) cited by Miss Leung. 90.In my view, Win Wave’s pleading has done just that. Besides defining the roles of the estate agents, the pleading contains explicit allegations that the estate agents knew or ought to have known that Win Wave relied on their experience and skill to pass on accurate and reliable information about the property. It was pleaded that as such, the estate agents had assumed the duty towards Win Wave to take care when making the representations (Re-amended statement of claim, para. 8). Duty of care and breach 91.Miss Leung argued that the estate agents were merely agents of Gosbon for selling the property; and that in passing the information obtained from Gosbon, the estate agents were likewise agents of Gosbon. Therefore, any misrepresentation belonged to that of Gosbon and none of the estate agents. Essentially Miss Leung referred to the basic principles of agency. 92.Such argument cannot be right. To begin with, it is not the law that while a principal is liable to a third party, the agent cannot be. Further, while the information might come from the vendor and, if the information was false, might turn out to be misrepresentation of the vendor through the estate agents, this is not to say that the estate agents owed no duty of care to the purchaser when answering the purchaser’s specific enquiry by passing on the information obtained. To begin with, this was a dual agency situation. 93.The estate agents must have known that Lee and Lam would rely on the information that they requested and it was certainly foreseeable that they might suffer loss and damage if the estate agents did not exercise reasonable care and skill in the collection and passing on of such information: see Jopard Holdings Ltd (above) at 326J; 328D-E. 94.I find there was the consequential duty on the part of the estate agents to take care to obtain and to pass on accurate and reliable information in answering the specific enquiry of Win Wave. In any event, the estate agents must be under the implied contractual duty and the general duty to exercise reasonable care and skill in doing so. In their evidence in court, the estate agents generally accepted that they owed Win Wave such duty. 95.The real question is whether the estate agents were in breach of such duty. Regarding information as regards the property concerned, section 36 of the Estate Agents Ordinance, Cap. 511 provides that:
96.Paragraph 3.3 of the Code of Ethics issued by the EAA provides that estate agents should protect their clients against fraud, misrepresentation or any unethical practices in connection with real estate transactions. Paragraph 3.2.2 requires the estate agents to keep informed of any laws, regulations, essential facts and developments in the real estate field relating to their practice. They should strive to provide services and opinions based on their knowledge, training, qualifications and experience in the business. 97.In Chiu Wai Ling v Chan Yau Chi [2002] 2 HKC 154, the vendor accepted that the title was defective because of potential liability for estate duty by reason of a deed of gift and sought to claim against the estate agents for failing to advise the vendor properly such as inserting a proper clause in the standard provisional agreement or to warn the vendor to seek independent legal advice. Considering the above provisions, the court held that the degree of skill and care expected of estate agents in Hong Kong would not extend to legal matters on which the estate agents receive no training. 98.Chiu Wai Ling was not a misrepresentation case. It was distinguished in Jopard Holdings Ltd (above) in that what was expected in the latter case was not knowledge or experience on questions of law, but passing on of accurate and reliable information about the property concerned. The estate agent in Jopard Holdings Ltd was held to be liable because he made no inquiry before the questions posted by the purchaser. 99.The present case is not about the giving of legal advice. Mr Vaughan argued that Chung simply passed on the information and documents at their face value without making serious enquiries with Gosbon to verify the true status of the application such as by enquiring about the existence of any further documents to support Lau’s answer. As to this, Chung’s explanation was that she believed in what Lau said and what the phrase “no objection” in the 16 November 2004 represented. 100.Miss Leung for the estate agents answered the above question in the negative. The syllabus for the estate agents qualifying examination (for the year 2007) was referred to, which shows that estate agents are apparently expected to demonstrate awareness (as opposed to basic knowledge or actual understanding) of the laws and technical concepts related to change in use of buildings (Part 5, section 5.4.3). 101.In my view, reference to the syllabus mentioned above has limited value. The syllabus sets out the depth of knowledge that the candidates are expected to demonstrate in the examination so as to obtain the qualification. This can hardly be the yardstick against which the reasonable care and skill expected of a licensed estate agent in the business is measured. Getting qualified for the licence through the examination is not equivalent to all the training and experience that the estate agent in the business possesses. 102.Miss Leung emphasized that Lam also possesses an estate agent’s licence. The suggestion seemed to be that the estate agents could not be expected to be aware of what Lam, who also possesses the qualification, was not aware of. But there is no dispute that Lam, who obtained her estate agent’s qualification in 2002, was never a professed estate agent and has never obtained any experience as such. There was marked difference in those terms between the estate agents and Lam. 103.This was a non-residential property marketed by Centaline CIS which, as its name suggests, specialises in commercial and industrial property. It was not that the estate agents were not aware of the issue of user of the property and conditions might need to be fulfilled. In court, Hui and Chung, both of Centaline CIS, somehow accepted that they should have some knowledge about the payment of premium for the change of user. Both said they had referred to their company’s database in relation to this property before attending Lee and Lam. The database in fact recorded back in 2002 “此物業是娛樂埸所契，如做其它行業要申請waiver或補地價“ which effectively meant that in view of the user restriction, an application for waiver of restriction or payment of premium would be required for any change of user. Hui also agreed that in view of the DMC and the Occupation Permit, which he consulted before the 1st viewing of the property, an estate agent should know that any change of user would have entailed application to the authorities, payment of premium and possible change to or under the DMC. 104.Miss Leung argued that there was no reason for the estate agents to doubt Lau’s information. Again, Centaline’s database in respect of the property in 2004 and 2005 (mentioned above) was referred to which recorded that according to Lau, the user had already been changed. Chung already relayed to Lee such information during the 1st viewing of the property. 105.But the fact was that Chung indeed telephoned Lau on the following day specifically asking Lau to confirm whether the user had been changed. She got the confirmation and the documents supplied by Lau. According to her in court, Chung could not read much English but simply satisfied herself by the phrase “no objection” in the 16 November 2004 letter from the DLO. Contrary to that, her superior, Hui agreed that the letter per se did not necessarily mean that the user change had been completed. 106.The fact was that whilst Lau verbally confirmed what Chung understood from her company’s database, the documents supplied fell short of matching such confirmation. Though seeking documentary support was supposed to be a major purpose of her enquiry with Lau, the estate agents were apparently happy to stop with what they obtained. If Chung had no previous experience in transaction involving change of user, as she claimed in court, there is no evidence what else she or her superior Hui had done about this. 107.Lai described himself as a “small potato” so that Hui of Centaline CIS would not even talk to him during the 1st viewing of the property. The impression Lai gave in court was that he did not understand even now what was going on about the user issue. He would even leave before the discussion at the café after the 2nd viewing of the property was over, allegedly for having to go to the schroff office of the car park. His explanation of his previous statements to the EAA was difficult to understand. Notwithstanding his self-acknowledged lack of experience and knowledge in English, he never really consulted his own superior at Centaline on this deal. Apart from being a conduit of information, he had known nothing and done nothing. However, it was Lai who brought Lee and therefore Lam into the deal in the first place. 108.Lai was from Centaline rather than Centaline CIS. He did not deal with commercial or industrial property in his business. He therefore brought along Connie Wong and Dennis Wong because, according to him, they were more experienced than he was. But the fact was that both Connie Wong and Dennis Wong were also from Centaline, not Centaline CIS. Dennis Wong agreed in court that this was actually his first commercial property deal. Connie Wong claimed to have said not much during and after the 2nd viewing of the property. The reason, according to her, was that she was not familiar with the matters discussed. 109.Connie Wong suggested that Lee and Lam were given a copy of the DMC and reminded to take legal advice. I find that that was more likely an inference she drew from what she described as (her) normal practice rather than her recollection that this actually happened. In court, Dennis Wong claimed to unsure about what were said on 28 August 2005. He could not recall whether Lee and Lam were reminded to obtain legal advice. 110.I accept the evidence of Lee and Lam that Connie Wong was in fact more involved than she suggested. That included her active proposal of various commercial uses that the property could be put to. I accept the evidence of Lee that Dennis Wong explained that the property could be used to operate businesses as they could see on the Ground Floor of the shopping mall of the Estate. I do not find the uncertain suggestion by Dennis Wong that Lee mentioned that he would consult his friend on the DMC to be reliable. Conclusion 111.Considering all the evidence, including those specifically analysed above, I find that the estate agents were in breach of their duty to Win Wave to take care to obtain and to pass on accurate and reliable information regarding the user of the property. None of them had the prudence of really seeking to understand the information and documents supplied by Lau. It followed that further enquiry at least with Lau, which ought to have been pursued, had not been pursued. As a result of such breach, for which Centaline is vicariously responsible, Win Wave has suffered loss. LOSS AND DAMAGE 112.Win Wave was entitled to rescind the provisional agreement and had done so. It is entitled to the return of the initial deposit of HK$500,000. It is also entitled to damages in the same amount and the out-of-pocket conveyancing expenses in the sum of HK$5,060. 113.As a result of the breach of duty on the part of Centaline and the estate agents, Win Wave has suffered loss. That would be the initial deposit that Gosbon had purportedly forfeited and the out-of-pocket conveyancing expenses. Win Wave is entitled to damages in the same amount. 114.Gosbon is guilty of misrepresenting the status of the change of user of the property to the estate agents who relayed the same to Win Wave. Unlike Win Wave, Gosbon cannot be heard to complain that the estate agents did not question the accuracy of the information that it supplied to them: see Chiu Wai Ling at 166D-E. Amongst the defendants, I am of the view that Gosbon should bear the majority of the responsibility for giving rise to this action. In my view, this amounted to 85%. ORDER 115.I make the following order:
Mr Joseph Vaughan instructed by Messrs K M Lai & Li for the Plaintiff Mr Peter Wong instructed by Messrs Chan Wong & Lam for the 1st Defendant Miss Shannon Leung instructed by Messrs Cheung & Choy for the 2nd, the 3rd and the 4th Defendants |
Cases cited in this judgment
Further hearings and rulings under DCCJ 209/2007