Centaline Property Agency Ltd v. Fung Wai Yee Irene

DCCJ 673/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 673 OF 2013

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JUDGMENT

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Introduction

1.Fung Wai Yee Irene (“Fung”) engaged Centaline Property Agency Limited (“Centaline”) to sell her property by an estate agency agreement for sale of residential properties dated 9 April 2012 (“the Agency Agreement”). On the same day, Fung entered into a preliminary sale and purchase agreement (“the Preliminary Agreement”) to sell her property with an intended purchaser, one Mr Tang. However, Fung aborted the sale and entered into a cancellation agreement dated 30 April 2012 (“the Cancellation Agreement”) with Mr Tang under which she agreed to return to Mr Tang the initial deposit in the sum of HK$180,000 and make compensation in the like amount to Mr Tang.

2.Centaline commenced these proceedings to claim against Fung for damages in the sum of HK$105,600 being the total commissions payable by Fung and Mr Tang under an express provision in the Preliminary Agreement. Fung denies liability and counterclaims for the total amount that she paid Mr Tang under the Cancellation Agreement plus the legal costs incurred in the sum of HK$6,200 on the ground that Centaline was in breach of the Agency Agreement and that Centaline procured her to agree to the Preliminary Agreement in particular the provision relating to her liability to pay special stamp duty (“SSD”) by misrepresentations.

3.There is no dispute that under the Preliminary Agreement, Centaline is entitled to commissions to be paid separately by Fung and Mr Tang on or before 23 April 2012. The issue is whether Centaline was in breach of the Agency Agreement and whether Centaline procured Fung to agree to accept her liability to pay SSD under the Preliminary Agreement by misrepresentations.

Undisputed factual background

4.The undisputed factual background, for the understanding of the parties’ respective cases, can be outlined as follows.

5.Fung is a widow and her late husband passed away on or about 2 September 2011. Her late husband acquired the subject property situated at Flat F, 26^th Floor, Block A (Galaxy Court), Pictorial Garden Phase II, No. 23 On King Street, Shatin, New Territories, Hong Kong (“the Property”) on or about 28 December 2001 in his sole name. Shortly before his demise, he added Fung to be the co-owner of the Property on 23 August 2011. From the land search record of the Property, it can be seen that the addition was effected by an assignment of the same date involving a consideration of HK$2.3 million (“the Assignment”). Thereafter, Fung and her late husband held the Property as joint tenants for a short spell and upon his death, by operation of law, Fung became the sole owner of the Property.

6.Fung started having exchanges with estate agents about the market price of the Property in early 2012. One of such agents was Centaline. Her asking price was HK$6.5 million.

7.In the morning of 9 April 2012, which was Easter Monday and hence a public holiday, Centaline made an appointment to view the Property with a prospective purchaser in the presence of Fung. Mr Kevin Kong (“KK”), a licenced estate agent of Centaline, brought Mr Tang and his girlfriend to the Property and stayed there for a short while.

8.Mr Tang indicated to KK his interest in the Property and so about half an hour later, they, together with his mother and his girlfriend went back to the Property to negotiate with Fung (“the 1^st Visit”). A trainee agent of Centaline Mr Kris Wong (“KW”) was also present to assist KK.    

9.Eventually Fung suggested HK$6.06 million to be the purchase price whilst Mr Tang offered HK$6.03 million. In order to materialize the transaction, Centaline agreed to reduce the commission payable by Fung by HK$15,000. In view of the discount given, Fung agreed that the purchase price be fixed at HK$6.03 million in the end.

10.Fung and Mr Tang signed the Preliminary Agreement in the sitting room of the Property after KK explained the contents of the same to them. Mr Tang should pay Fung upon signing the Preliminary Agreement a sum of HK$180,000 as initial deposit. Mr Tang should pay a sum of HK$423,000 as further deposit on or before 23 April 2012 and completion was scheduled to take place on 29 June 2012. At that stage, the Preliminary Agreement made no mention about SSD.

11.The Preliminary Agreement contained the following express terms:

Clause 11: In consideration of the service rendered by the Agent (Centaline), the Agent shall after this Agreement be entitled to receive HK$45,300 from the Vendor (Fung) and HK$60,300 from the Purchaser (Mr Tang) as commission such commission shall be paid not later than 23 April 2012.

Clause 12: If in any case either the Vendor or the Purchaser fails to complete the sale and purchase in the manner herein contained, the defaulting party shall compensate at once the Agent HK$120,600 as liquidated damages. The defaulting party shall be responsible for the payment of the stamp duty.   

12.Apart from the Preliminary Agreement, Fung also signed the Agency Agreement. After the conclusion of these agreements, KK et al left the Property. Before long, KK called Fung and told her that a provision relating to SSD should be included in the Preliminary Agreement. KK told Fung that KW and he would meet her at the Property soon so that Fung could endorse the insertion of a supplemental clause relating to SSD.

13.Then, at around 2:00 p.m., KK and KW visited Fung again at the Property (“the 2^nd Visit”). During the 2^nd Visit, KK wrote on the Preliminary Agreement a clause in the following terms as an additional term under Clause 17 (“the SSD Clause”):

“如有額外印花稅, 由賣方負責支付.”

14.Fung signed beside the SSD Clause for endorsement. Under the SSD Clause, Fung alone was liable to pay SSD if any.   

15.KK and KW then brought the Preliminary Agreement to a carpark near a restaurant in Shatin (“the Carpark”) for Mr Tang to endorse the SSD Clause. Before Mr Tang arrived, KK received a call from Fung. Fung told him not to hand over the Preliminary Agreement to Mr Tang and she wanted to call off the deal.

16.Mr Tang and his mother arrived shortly afterwards. KK told them Fung’s instructions. They insisted on completion pursuant to the terms of the Preliminary Agreement and demanded KK to hand over the Preliminary Agreement to them. KK then called Fung. On the other hand, Mr Tang called the police.

17.KK asked Fung to meet them at the Carpark to resolve the impasse. Fung then was having her lunch in Shatin and told KK that she would go to the carpark after finishing her meal. As a result, KK with a group of people including two policemen and one Mr Ngo, the superior of KK, waited for Fung at the Carpark.    

18.Finally Fung arrived and after talking to Mr Ngo alone, Fung agreed to release the Preliminary Agreement to Mr Tang.

19.By a letter dated 12 April 2012 (“the Letter”), Messrs Chiu, Szeto & Cheng (“CSC”), solicitors for Fung, wrote to the Stamp Office of the Inland Revenue Department (“the IRD”). In the Letter, it was alleged that KK told Fung that no SSD was payable but in any event she was asked to agree to the SSD Clause. In the absence of legal advice and given the misrepresentations by KK, Fung signed the Preliminary Agreement. However, CSC made a phone call enquiry with the Stamp Office on 10 April 2012[1] and an unidentified staff of IRD replied that Fung would have to pay SSD on account of the half share of the Property she acquired by the Assignment.

20.It was also put forth in the Letter that the Assignment was solely for estate planning purpose in view of his imminent death. As such, it was argued that SSD should not be chargeable pursuant to section 29CA(11) of the Stamp Duty Ordinance, Cap.117 (“the SDO”). Unfortunately, the reply of the IRD, if any, is not available to this court.

21.On 18 April 2012, Fung lodged a written complaint with the Estate Agents Authority (“the EAA”) against KK. Thereafter the EAA carried out an investigation of the complaint.  

22.By a letter dated 23 April 2012, CSC informed Messrs LCP Lawyers, solicitors for Mr Tang, that Fung decided not to proceed with the sale of the Property and a cheque in the sum of HK$180,000 was enclosed therewith for the refund of the initial deposit paid by Mr Tang.

23.On 30 April 2012, the Cancellation Agreement was signed and it was an express term that Fung would compensate Mr Tang a sum of HK$180,000 for not proceeding with the sale. Such a payment of the agreed compensation was evidenced by a cheque in the said amount dated 26 April 2012.

24.By a letter dated 17 May 2012, the Legal Department of Centaline referred Fung to Clause 12 of the Preliminary Agreement and demanded payment of liquidated damages in the sum of HK$120,600. Legal proceedings were threatened in case of non-compliance within seven days from the date of the letter.

25.By her letter dated 23 May 2012 (“Reply Letter”), Fung alleged that KK practised fraud on her and misrepresented to her that she did not need to pay any SSD in respect of the sale of the Property during the 2^nd Visit. She further pointed out that she had asked Mr Tang to postpone the transaction to August because of KK’s fraud and misrepresentation but Mr Tang refused. In the premises, Fung claimed that Centaline was not entitled to commissions and in fact she could claim for damages.

26.On 25 February 2013, Centaline commenced these proceedings against Fung. Fung filed her Defence and Counterclaim on 15 April 2013 and thereby for the first time made her monetary claim against Centaline.

27.Since the rival contentions involve the issue of SSD liability, a brief introduction of SSD is apposite. SSD was first imposed by the Stamp Duty (Amendment) Ordinance 2011 (“the Ordinance”), which deemed to have taken effect from 20 November 2010. Circular No.11-03(CR) was issued by the EAA (“the Circular”)[2] to explain SSD to practitioners and the Circular was effective at the material time. In the Circular, a summary was provided as follows:

The disposal (which includes a resale or transfer) within 24 months of a residential property acquired on or after 20 November 2010 will be subject to a special stamp duty.

Practitioners should bring to the attention of their clients before entering into any preliminary agreement for sale and purchase that the sale of the property that the sale of the property concerned will be subject to payment of a special stamp duty if it can be ascertained from the land search of the property and/or the vendor that the property was acquired by the vendor on or after 20 November 2010 and that its sale under the preliminary agreement for sale and purchase is within 24 months from the date of acquisition.

Practitioners should advise their clients to agree on which party shall pay the special stamp duty and specify in the preliminary agreement for sale and purchase their agreement.

28.There is a sliding scale of the chargeable rate of SSD depending on the time lapse between the date of acquisition and the date of disposal of the relevant property. In the present case, the Property was acquired in August 2011 and the Preliminary Agreement was made in April 2012. Thus, the disposal was after the expiry of 6 months but within 12 months from the date of acquisition and the applicable rate was 10% of the consideration for the transaction.

29.The Circular also strongly advised practitioners to refer to the Stamp Office Interpretation and Practice Notes No. 5, Q & A for SSD and Illustrative examples of the application and computation of SSD available at the website of the IRD. 

30.In the Stamp Office Interpretation and Practice Notes No. 5, practitioners are referred to certain exemptions in the Ordinance. One of the exemptions applied when the purchaser under the chargeable agreement is a parent, spouse, child, brother or sister of the vendor under the same agreement (“the Relation Exemption”).

31.For completeness, on 8 November 2013 and 24 January 2014, the Disciplinary Committee of the EAA conducted an inquiry against KK upon the complaints of Fung (“the Inquiry”). KK was legally represented by Mr Hung of Messrs Terry Yeung & Lai, current solicitors for Centaline, and was subsequently found on his admission to have omitted the inclusion of the SSD Clause when the parties first signed the Preliminary Agreement. However, the Committee found that the omission was remedied by the SSD Clause subsequently added and endorsed by the parties. Therefore, the Committee found the error to be technical in nature and did not consider serious sanction appropriate. Reprimand and compulsory attendance of professional courses were the penalties imposed on KK.  

Preliminary matters

32.Whilst the parties’ respective contractual duty to pay commissions and under the Preliminary Agreement and the non-payment of such commissions are not disputed, the burden to prove the alleged breaches of the Agency Agreement and the misrepresentations rests on Fung. On this basis, it was directed that Fung should open her case first.

33.On the other hand, this court observed at the pre-trial review hearing on 7 May 2014 that no specific basis of the alleged implied terms of the Agency Agreement is pleaded in the Defence. As the learned editors of Hong Kong Civil Procedure 2014 Vol.1 note at §18/12/16 (15A) at p.403, where an implied contractual term is pleaded, particulars should be given of the material facts upon the basis of which the implied term is said to be arise.

34.Nothing was done to improve the plea until 20 June 2014, nevertheless. Ultimately, CSC without leave filed and served voluntary particulars dated 19 June 2014 pursuant to Order 18 r.12, Rules of the District Court. The relevant part of the document reads,

“Of the Implied Terms pleaded at paragraph 3 of the Defence and Counterclaim, the Defendant states that such implied terms are implied by way of trade practice, basis of which are pleaded (sic) at paragraph 38 of the Defence and Counterclaim.”

35.The implied terms pleaded (“the Implied Terms”) are as follows:

(1) Centaline being a professional licensed estate agent in Hong Kong owed to Fung a duty to protect the interests of Fung as a vendor of the Property;

(2) Centaline being a professional licensed estate agent shall advise Fung of SSD which would be payable on the sale of the Property;

(3) Centaline shall strictly comply with and shall procure its staff to strictly comply with the Code of Ethics and all the rules and regulations of the EAA.

36.Paragraph 38 of the Defence and Counterclaim refers to various provisions in the Code of Ethics of the EAA (“the Code”) pleaded as particulars under the allegation that Centaline was in breach of the Implied Term by failing to procure its staff to comply with the Code. None of the provisions pleaded relates to SSD.  

37.At the outset of the trial, Ms Leung, counsel for Fung, applied for leave to serve the voluntary particulars. Mr Pun, counsel for Centaline, opposed the application. Ms Leung explained that CSC first wrote to Messrs Terry Yeung & Lai on 10 June 2014 to ask for their consent to their proposed amendment to the Defence and Counterclaim with the insertion of the voluntary particulars. In view of the objection of Centaline, Fung sought to include such particulars by way of voluntary particulars.

38.I refused the application. For applications made in the eleventh hours, first and foremost cogent reasons for the lateness must be given. Here, I see no reason why CSC waited until 10 June 2014 to take the first step to improve the pleadings. Ms Leung accepted that there was no valid reason for the delay. The latitude displayed by the defence is both inexplicable and unacceptable. On this ground alone. I did not hesitate to dismiss the application.

39.Another reason why I disallowed the application was that the alleged trade practice was not properly supported by factual particulars and evidence. The alleged provisions of the Code pleaded in the later part of the pleading per se cannot be taken as trade practice. I should add that the defence did not even produce the Code as evidence.

40.Lastly, Ms Leung confirms that Fung now does not rely on the alleged misrepresentation made by Mr Ngo though certain allegations against Mr Ngo are included in the Defence and Counterclaim too.

Fung’s pleaded case and evidence

41.By way of personal background information, Fung went to a government nursing school in or about 1972 but she never practiced as a nurse after graduation. In 1976 she worked as an accounting clerk until 1992. She became a full time housewife in Hong Kong then and she emigrated to New Zealand in 1997. In 2003, she returned to Hong Kong and in 2005, she started working part-time as an insurance agent up till now.

42.Prior to the intended sale of the Property, Fung was twice involved in property transactions for investment purpose.

43.For the 1^st Visit, her version is that KK first showed to her and Mr Tang the land search record of the Property on his iPad and explained to Mr Tang the transaction history. It was the first time Fung had met KK. After the purchase price had been agreed, KK prepared the Preliminary Agreement and explained the contents to KK and Mr Tang. The parties confirmed their agreement to them and appended their signatures on the Preliminary Agreement. The agents and the purchasers then left the Property at about 1:10 p.m..

44.Fung received a phone call at 1:40 p.m. from KK. KK told her that he had forgotten something in the Preliminary Agreement and he wanted Fung to wait for his return to deal with the omission. About ten minutes later, KK and KW returned to the Property with the Preliminary Agreement. KK explained to Fung that a provision relating to SSD had to be inserted to the Preliminary Agreement since her acquisition of interest in the Property in August 2011 should be taken into account. Yet, KK assured Fung that he had consulted Messrs Tam & Partners (譚日明律師行) (“Tam”), a firm of solicitors and the legal advice was that the transaction only involved direct family members and should be exempted from SSD provided that sufficient documentary proof could be given.

45.Given this legal advice, Fung pointed out that it was unnecessary to add the SSD Clause. However, KK told Fung that he needed to add the SSD Clause to the Preliminary Agreement as a matter of formality and to protect the interests of his clients.

46.Fung was not totally convinced and she felt suspicious. She thus called Mr Chiu, one of the partners of CSC to seek legal advice but could not reach him. Fung’s oral testimony under cross-examination is that she was pestered by KK to endorse the SSD Clause and she could only rely on the representations of KK and the legal advice of Tam as relayed to her by KK. She said she was in a hurry and did not have sufficient time to think the matter through. Her pleaded case is that she trust KK and believed his advice given the fact that Centaline was a reputable property agency. She eventually signed on the Preliminary Agreement to endorse the SSD Clause. KK and KW then left the Property.

47.At about 2:46 p.m., KK called Fung and told her that he had sought legal advice from a few lawyers and their advice was that there was a possibility that she had to pay SSD in the sum of HK$600,000 being 10% of the consideration. She felt she had been deceived and incensed. She instructed KK not to pass the Preliminary Agreement to Mr Tang for his endorsement of the SSD Clause. She told KK that she had to seek legal advice on the following day to consider whether to proceed with the sale or not.

48.In cross-examination, Fung stressed that she would not agree to sell the Property at all if she had to pay any SSD.

49.At about 3:10 p.m., KW called Fung and told her that Mr Tang had called the police and accused him of stealing the Preliminary Agreement. KW asked Fung to attend the scene.

50.When she arrived, Mr Ngo introduced himself to her and told her that if she insisted on withholding the Preliminary Agreement from Mr Tang, she would be in breach of the same. She felt confused and helpless. She finally agreed that KW should release the Preliminary Agreement to Mr Tang for his endorsement of the SSD Clause.

51.On these alleged facts, Fung’s pleaded case is based on the Implied Terms. She says Centaline breached the Implied Terms in that it failed to protect her interest in (a) that it failed to advise her about the fact that SSD would be chargeable on the sale of the Property to Mr Tang, (b) that it induced her by misrepresentation to accept the inclusion of the SSD Clause without giving Fung any opportunity to negotiate with Mr Tang on the liabilities to pay SSD, (3) that it further induced Fung to proceed with the sale of the Property with the misrepresentation that Centaline would reduce the commission payable by Fung on the sale of the Property and (4) it failed to procure its staff to comply with the Code.

52.There is a further plea that Centaline is responsible for the acts and omission of its employees and so it is vicariously liable for the acts and omission of its employees, namely KK, KW and Mr Ngo. There is however no plea of any tort committed by KK, KW and Mr Ngo personally and I cannot see how Centaline could be held vicariously liable for any tortious liability of its employees.

53.In summary, Fung’s contractual claim arises from the alleged breach of the Implied Terms in the Agency Agreement. But for KK’s erroneous statements about her liability to pay SSD, Fung would not have agreed to the SSD Clause and accepted any contingent SSD liability.

54.On the other hand, her ability to state the exact time of those calls made by KK to her is apparently owing to her call records in her mobile phone. Unfortunately, such records have not been made available to this court.

Centaline’s pleaded case and evidence

55.In a nutshell, Centaline’s pleaded case in respect of the alleged breach of the Implied Terms and misrepresentations is that there was no such breach and that KK did not make any misrepresentation as alleged or at all. On the contrary, KK explained clearly to Fung the liability to pay SSD arising from the sale of the Property by the Preliminary Agreement and Fung agreed to pay the same. There was indeed an omission to include a provision relating to SSD in the Preliminary Agreement and the SSD Clause was inserted during the 2^nd Visit with the full consent of Fung.

56.Only KK testified for Centaline. He gave a straightforward account of what happened on 9 April 2012 largely in line with the matters pleaded in the Reply and Defence to Counterclaim. KK has worked as a licenced estate agent since 1998 and he alone handled the transaction relating to the Property. KW was then a trainee only and just went along with KK to learn the trade.

57.Before KK met Fung in the Property, he had already known from the database of Centaline that Fung acquired half share of the Property less than two years prior to the intended sale. KK knew that SSD was chargeable. Thus, during the 1^st Visit, when KK and Fung discussed the price in the master bedroom, KK reminded Fung that SSD was chargeable in respect of the half share of the Property she acquired in August 2011. KK told Fung that in his experience, usually vendors would agree to pay all the SSD chargeable though as a matter of law, both vendor and purchaser are jointly and severely liable for payment of SSD.

58.Fung replied that she did not think she would be required to pay SSD. She claimed that her name was only added by the Assignment and it was not a sale transaction. As such, no SSD should be chargeable. KK indicated his disagreement and Fung asked him how much SSD would be payable. KK explained to her that on the basis that the consideration would be HK$6.03 million, she had to pay about HK$300,000 as SSD.

59.Fung then said she needed to make a call to seek legal advice. KK then left the master bedroom and attended to Mr Tang in the sitting room. A few minutes later, Fung told KK that she accepted to pay SSD. Then KK prepared the Preliminary Agreement and explained its terms to the parties sitting around the table. The parties agreed to the terms and signed the Preliminary Agreement. KK forgot to specify Fung’s agreement to pay SSD in contravention of the guidelines set out in the Circular. It was clearly stated in the Circular that practitioner who failed to observe the guidelines therein might be subject to disciplinary action by the EAA.

60.KK found out that a SSD clause was omitted when he reported the transaction to Mr Ngo. He immediately called Fung and asked her whether she could endorse the inclusion of the SSD Clause with her initials and Fung agreed.

61.During the 2^nd Visit, Fung again claimed that she should not be required to pay SSD because the transaction in August 2010 merely involved an addition of her name. KK reiterated to her that SSD was chargeable. To avoid unnecessary argument, KK suggested the SSD Clause be drafted in such a manner so that it could also cover Fung’s position. KK thought the SSD Clause was sufficient as it unequivocally recorded Fung’s obligation to pay SSD if so chargeable.

62.When KK was at the Carpark waiting for Mr Tang, he received a call from Fung. She told KK that she had just found out that a flat underneath hers had been sold at HK$7.2 million in the previous month and their agreed price of HK$6.03 million was way too low. She told KK that the Property could at least be sold at HK$6.8 million. KK explained to her that the flat she had mentioned was different in that the purchaser bought it straight from the developer. Fung was still unhappy and asked KK to call off the sale.

63.KK then relayed Fung’s intention to Mr Tang. Mr Tang insisted on completion of the transaction and demanded KK to deliver the Preliminary Agreement to him. KK told him that he needed to call Fung first. When KK was on the phone, Mr Tang called the police. Fung asked KK to withhold the Preliminary Agreement from Mr Tang until she arrived at the Carpark to deal with the dispute herself.

64.When the police arrived at the Carpark, KK called Fung a few times to hurry her. KK also called Mr Ngo and asked him to assist. Mr Ngo came and confirmed with Mr Tang that Mr Tang insisted on completion of the sale. Then Fung arrived.

65.Fung and Mr Ngo had a private discussion and then they came back and agreed to let Mr Tang have the Preliminary Agreement and proceed with the sale.

66.In reply to the queries of this court, KK was adamant in his assertion that he did not mention Tam to Fung in whatever context at all on 9 April 2012. KK however explained that Tam was one of those solicitors on the list of Centaline, for whatever it means.

Discussion

67.I shall first resolve the factual disputes before dealing with the pleadings. KK and Fung give two diametrically different versions of their discussion about SSD on 9 April 2012 and their dispute is essentially one person’s words against another’s. This court is tasked with the fact finding exercise but is handicapped by the lack of contemporaneous documents such as Fung’s phone records and the absence of other relevant witnesses such as KW, Mr Ngo and possibly Mr Tang.  

68.In assessing the respective credibility of KK and Fung, I bear in mind the dicta of Chung J in Star Glory Investment Ltd v Kai Tuo (HK) Technology Co Ltd and Ors., unreported, HCA765/2002, 12.8.2005, §12:

“The assessment of a witness’s credibility and/or reliability is a task frequently undertaken by the court in litigation (in fact, very often an essential task). I consider the following to be the appropriate test to adopt:-

‘There are two objective tests for assessing a witness’s credibility regarding a matter to which he has testified:-

(a) whether that part of his testimony is inherently plausible or implausible;

(b) whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).

Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility. Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest’.”

69.First, by way of general observation, neither KK nor Fung appeared to be forthcoming and reliable. I do not think that they have told me the whole truth. KK, having undergone the Inquiry, was calm and emotionless under cross-examination and his answers were well-prepared. He basically stuck to the contents of his witness statement. On the other hand, Fung was equally clinical in her oral testimony, which did not differ materially from her witness statement under cross-examination. She was previously cross-examined in the Inquiry by Centaline’s lawyer and the Committee. She remained to be unable to satisfactorily explain for certain dubious matters in her evidence.

70.In the circumstances, adopting the approach of Chung J in Star Glory Investment Ltd, I, doing the best I can, scrutinize the evidence of the parties to reconstruct what actually transpired on 9 April 2012 between KK and Fung.

71.First and foremost, I believe that the issue of SSD was not raised for the first time during the 2^nd Visit. I do not think that Fung was truthful when she said she would not sell the Property if SSD was chargeable. I do not accept Fung’s explanation for her endorsement of the SSD Clause. She was no stranger to commercial contracts given her work experience. She accepted under cross-examination that when she initiated the SSD Clause, she knew that the amount chargeable was sizeable.

72.If KK had failed to mention SSD altogether during the 1^st Visit, Fung would have been very unhappy with him and there must be a serious breakdown of trust and confidence in him. It must be clear to her that the SSD Clause could neither be a mere formality nor be aimed at protecting her interests and she could not have been persuaded by KK. Even Fung claimed herself to be suspicious of KK’s explanation. I do not accept that against this background she could be so easily succumbed to KK’s demand to endorse the SSD Clause and agree to take up the potential SSD liability within a short space of time, given the clear legal implications of the SSD Clause.

73.On this basis, I prefer the evidence of KK that he did discuss SSD liability with Fung before the execution of the Preliminary Agreement at the end of the 1^st Visit. I also take note of the fact that it was indeed Fung’s own allegation in the Letter that KK represented to her that no SSD was payable right after the conduct of a land search of the Property. Her evidence was that the land search was shown to her and Mr Tang during the 1^st Visit.

74.Then the next question is what precisely the advice KK gave Fung about SSD during the two Visits was. In the first place, I believe on balance of probabilities that KK did mention Tam despite his denial. There was no suggestion of Fung’s prior knowledge of any connection between Centaline and Tam. Though in the Letter there was no mention about Tam, in her written complaint lodged with the EAA on 18 April 2012, less than a week afterwards, she already made the allegation that KK had relayed the legal advice of Tam to her. I do not think Fung would go so far as to find out those firms of solicitors working closely with Centaline in a bid to make a false accusation to lend support to her compliant to EAA.   

75.I am aware of the letter of Tam dated 3 December 2012 in reply to the EAA. Tam issued the letter only after a reminder of the EAA and it was claimed that after enquires with their staff, according to their recollection, they had not come across any enquires about SSD by KK of Centaline. However, in my view, this hearsay evidence is equivocal. The legal advice might not be obtained by KK himself and the enquiry could have been made by his colleagues. I could hardly attach any weight to this letter.  

76.Given the concealment of his quotation of the legal advice of Tam to Fung, I cannot accept KK’s evidence that he actually advised Fung that she had to pay about HK$300,000 as SSD during the 1^st Visit. It was not his evidence that he quoted Tam’s legal advice to convince Fung of her SSD liability. There must be a reason why KK quoted the legal advice of Tam to Fung.

77.I accept the evidence of Fung that the Relation Exemption was somehow mentioned by KK as part of the legal advice in the process though I do not think it was applicable in her case. Nevertheless, I do not accept the pleaded case of Fung that KK ever represented to her that SSD would not be chargeable in light of the legal advice of Tam.

78.In her evidence adduced in the Inquiry, Fung said Tam’s legal advice was relayed to her to show that there were a grey area and the Relation Exemption in her case. In cross-examination, she agreed with Mr Pun that the legal advice was whether SSD was chargeable was a matter in the grey area and not entirely certain. On her own evidence, her pleaded case of misrepresentation cannot be made out.  

79.I think on balance of probabilities, the actual scenario is that KK himself was not entirely sure whether SSD was chargeable and he did not represent to Fung that no SSD would be charged. His mention of the Relation Exemption was confusing as it only applied to the intended disposal of Fung’s interest in the Property and not her acquisition of the same. KK nevertheless made it clear to Fung that it was a matter in the grey area.

80.I further reject Fung’s evidence that KK shortly after the 2^nd Visit called to tell her, contrary to the misrepresentations and legal advice just relayed to her, several lawyers confirmed that there was a possibility that she had to pay SSD in the sum of HK$600,000 and that caused her to try to cancel the sale on that day. Even if the SSD Clause was procured by the misrepresentations of KK, there was no reason why KK found it necessary to alert to Fung her liability to pay SSD before the Preliminary Agreement was handed over to Mr Tang for his endorsement of the SSD Clause. To KK, the SSD Clause and hence Fung’s agreement to pay SSD regardless of the amount were secured. I see no reason why he sent such a disquieting message to Fung shortly afterwards to rock the boat and put himself in a dilemma.

81.Therefore, I find, on balance of probabilities, KK’s version as to why Fung changed her mind preferable. I accept that Fung told KK that the lower flat was sold at a higher price and so she wanted to call off the sale and it had nothing to deal with her liability to pay SSD.

82.Fung’s conduct at the Carpark was very telling. If she had been misrepresented and conned into accepting the SSD Clause, I am sure she would have been very aggrieved. It would be a very serious case of fraud and sharp practice which caused her considerable financial loss. There was simply no reason why she did not make any complaint to the police and Mr Ngo at all. It is inexplicable that Fung did not even raise the issue of SSD to them. Nor was not there any negotiation about SSD between Fung and Mr Tang when they met face to face. I cannot accept Fung’s explanation that she was just too confused and at a loss at that time.   

83.Moreover, Fung was throughout not in any way restrained from seeking legal advice. Fung was well aware of the need of legal advice given the uncertainty and she did attempt to seek legal advice. It was only unfortunate that she failed to contact her trusted lawyers.

84.To sum up, I find as a matter of fact that KK to the best of his knowledge explained the issue of SSD to Fung and told her that it was usually vendor’s liability to pay before the parties signed the Preliminary Agreement. KK was unsure about the chargeability of SSD in her case and Fung sought legal advice but in vain. The 2^nd Visit was necessitated because of the omission of KK to include any provision about SSD in the Preliminary Agreement and during the 2^nd Visit, Fung agreed to the inclusion of the SSD Clause without any misrepresentation as alleged. Their uncertainty about the chargeability of SSD was aptly reflected by the subjunctive mood of the SSD Clause. Fung subsequently changed her mind with a view to a higher sale price of the Property though I note that she has remained to be the registered owner of the Property after the issue of the Writ. She entered into the Cancellation Agreement not because of KK’s alleged misrepresentation and/or any omission on the part of KK relating to SSD.

85.I should add that whether SSD would have been charged on the Preliminary Agreement remains a moot point and it is inappropriate for me to make a finding of this academic question particularly in the absence of a full debate. Prima facie, under the Ordinance, which was effective not long before the material time, SSD would be chargeable but I can see strong arguments against its imposition in Fung’s case besides the submissions advanced in the Letter on her behalf. As stated in Stamp Office Interpretation and Practice Notes No. 5, SSD is designed to curb short-term speculation in the property market but Fung did not really acquire her interest from her late husband in the Property to speculate. In the circumstances, the chargeability of SSD on the Preliminary Agreement was not a straightforward question and the definite answer was not available to this court. I do not think that KK could be faulted for his failure to advise Fung with certainty on this issue.

86.Mr Pun raises a legal question as to whether the alleged misrepresentation was actionable in his written submissions. He submits that there was no evidence that KK himself did not genuinely believe the correctness of such legal opinion of Tam. This legal issue is not raised on the pleadings and not included in the Agreed Issues. Tam actually denied the existence of any legal advice of Tam. Further, given my factual finding of the non-existence of the pleaded misrepresentations, I do not find it necessary to resolve this legal issue.

87.Now I turn to Fung’s pleaded case. It is obviously problematic. Technicality aside, I accept that, by operation of law, Centaline, being the agent of Fung, owed certain duties to Fung and such duties should be implied in the Agency Agreement. The Implied Terms were reasonable and necessary and they should be incorporated into the Agency Agreement. As Mr Pun reasonably accepts during his closing submissions, as a licensed estate agent, KK was obliged to follow the Code and comply with the guidelines of the EAA set out in its circulars issued from time to time. 

88.As mentioned, the Code inexplicably has not been adduced into evidence. In its Reply, Centaline makes a bare denial of such provisions of the Code pleaded in the Defence and Counterclaim but it fails to state its positive case of what the relevant provisions should actually read. In any event, KK frankly accepted under cross-examination that he was obliged to fulfill such duties as pleaded.

89.However, on my findings of fact and for the reasons given above, Fung could hardly establish a claim against Centaline on breach of the Implied Terms. The omission of KK to include any provision relating to SSD in the Preliminary Agreement in the 1^st Visit is irrelevant. It is not part of the pleaded case and in any event it was remedied by the inclusion of the SSD Clause during the 2^nd Visit.

Conclusion and Orders

90.On the evidence, Fung cannot succeed in her Defence and Counterclaim and so I dismiss her Counterclaim. Fung cannot possibly make Centaline a scapegoat for her failure to complete the sale in accordance with the Preliminary Agreement. In my judgment, Fung was in breach of the Preliminary Agreement and as a result Centaline has suffered loss of commissions totaling HK$105,600 under Clause 11 of the Preliminary Agreement.

91.I therefore enter judgment against Fung in the sum of HK$105,600 as pleaded. I further order interest to run on the said sum at 1% over prime from 23 April 2012 (the contractual date of payment of commissions) until judgment, and thereafter judgment rate until payment.

92.Costs should follow the event. I make an order nisi that Centaline’s costs of this action including the counterclaim (including any costs reserved) be borne by Fung, to be taxed if not agreed. After trial, I opine that the dispute is factual and rather straightforward. Those instructing Mr Pun could competently conduct the trial, as shown in the transcripts of the Inquiry. Both the claim and the counterclaim involve modest sums only. In the premises, however appreciative of Mr Pun’s efforts I am and despite Fung’s engagement of counsel, I do not think that certificate for counsel is appropriate. The order nisi will become absolute absent an application to vary the same within 14 days.

Mr Dominic Pun, instructed by Messrs Terry Yeung & Lai, for the plaintiff

Ms Pauline Leung, instructed by Messrs Chiu, Szeto & Cheng, for the defendant