FORTUNE ASSET DEVELOPMENT LTD v. DE MONSA INVESTMENTS LTD

HCA 2723/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2723 OF 2008

____________

BETWEEN

	PROBUS LIMITED	Plaintiff
and
	TREBLE & TRIPLE LIMITED	1st Defendant
	MIDLAND REALTY INTERNATIONAL LIMITED	2nd Defendant

(By Original Action)

AND BETWEEN

	TREBLE & TRIPLE LIMITED	Plaintiff
and
	PROBUS LIMITED	1st Defendant
	MIDLAND REALTY INTERNATIONAL LIMITED	2nd Defendant

(By Counterclaim)

____________

AND

HCA 167/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 167 OF 2009

____________

BETWEEN

	FORTUNE ASSET DEVELOPMENT LIMITED	Plaintiff
and
	DE MONSA INVESTMENTS LIMITED	1st Defendant
	CENTALINE PROPERTY AGENCY LIMITED	2nd Defendant

(By Original Action)

AND BETWEEN

	DE MONSA INVESTMENTS LIMITED	Plaintiff
and
	FORTUNE ASSET DEVELOPMENT LIMITED	1st Defendant
	CENTALINE PROPERTY AGENCY LIMITED	2nd Defendant

(By Counterclaim)

____________

AND

HCA 1004/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1004 OF 2009

____________

BETWEEN

	MULTI STAR INVESTMENT (GROUP) LIMITED	Plaintiff
and
	DE MONSA INVESTMENTS LIMITED	Defendant

____________

(Heard together)

Before: Hon Reyes J in Court

Dates of Hearing: 1-3, 8 & 12 November 2010

Date of Judgment: 17 November 2010

______________

J U D G M E N T

______________

 

I. INTRODUCTION

1.  This trial involves 3 related actions.

2.  The Plaintiff Vendors in each action (Probus, Fortune Asset, and Multi Star) entered into agreements for the sale of real property to one or other of the Defendant Purchasers (Treble in the case of Probus, De Monsa in the cases of Fortune Asset and Multi Star).  As a result of the Purchasers defaulting on their obligations, the Vendors brought their actions claiming damage.

3.  The Purchasers are property investment companies.  At the relevant times, all decisions on the sale and purchase of properties by the Purchasers were taken by Lauw Senior.  He was then over 80 years old. The Purchasers had one other director, Lauw Senior’s son, sometimes known as Lauw Junior.  But Lauw Junior carried on the family business in Indonesia and his involvement in the Purchasers’ day-to-day business was minimal.

4.  In each action, the Purchasers say in defence that, when Lauw Senior agreed on the Purchasers’ behalf to buy properties, Lauw Senior was suffering from dementia and could not understand what he was doing. The Purchasers say that Lauw Senior’s actual authority to act on their behalf ceased upon his becoming demented.  The Purchasers contend that, as a result, the sale and purchase agreements upon which the Vendors sue were all void (or at least voidable by the Purchasers).  Subject to questions as to Lauw Senior’s apparent authority or as to whether the Purchasers ratified Lauw Senior’s acts, the Purchasers say that the Vendors’ actions are not viable.

5.  Probus and Fortune Asset have joined the estate agents involved (Midland and Centaline respectively) as defendants.  The claim is that, insofar as the Purchasers are held liable, the estate agents breached their duties to Probus and Fortune Asset by not informing them of Lauw Senior’s dementia.

6.  The Purchasers have in turned sued the estate agents, seeking to be indemnified against whatever the Purchasers may have to pay to Probus or Fortune Asset.

7.  Finally, Midland sues Treble for unpaid liquidated damages.

II.  BACKGROUND

A.  Probus Action

8.  By 4 Principal Agreements of 23 March 2007 Probus agreed to buy Flats A and B and Car Parks A and B (the Bel-Air Properties) from Cyberport. The Bel-Air Properties (then still under construction) formed part of the development known as Bel-Air on the Peak.  The total consideration for the Bel-Air Properties was $56,109,000.

9.  On 18 October 2007 Probus entered into Provisional Agreements to sell the Bel-Air Properties to Treble in 2 lots (one consisting of Flat A and Car Park A, the other of Flat B and Car Park B).  The Provisional Agreements stated that Probus was selling the Bel-Air Properties as confirmor.  The Provisional Agreements stipulated that the parties were not obliged specifically to perform the same.

10.  The evidence suggests (and I accept) that on 18 October 2007 Mr. Au Kin Cheong of Probus signed Estate Agent Agreements in relation to the 2 lots of Bel-Air Properties being sold to Treble.  The Estate Agent Agreements were signed on behalf of Midland by Mr. Frankie Lau and Ms. April Tong respectively.  On their face, the Estate Agent Agreements appointed Midland as Probus’ agent (in the case of the 2nd lot of Bel-Air Properties, Probus’ exclusive agent) for the marketing of the Bel-Air Properties from 1 October 2007 to 31 December 2008.

11.  The total consideration under the Provisional Agreements was $122,017,800.  Upon the signing of the Provisional Agreements, Treble paid an initial deposit of 5% by way of cheques signed by Lauw Senior.

12.  On 8 November 2007 Treble’s solicitors (Lovells) sent to Probus’ solicitors (JSM), Formal Agreements for the sale and purchase of the Bel-Air Properties.  Lovells’ covering letter noted that the Formal Agreement had been “duly signed by our client, the Purchaser and attested for your client’s execution”.  Treble also paid a further deposit of 10% for the Bel-Air Properties.

13.  In July 2008 Lovells raised requisitions regarding the Bel-Air Properties.  These were answered by JSM. 

14.  On 25 November 2008 JSM sent notices of completion to Lovells.  These notices informed Treble that completion would take place on or before 9 December 2008. 

15.  Treble failed to complete on 9 December 2008. It gave no reasons for its failure.

16.  Probus completed the purchase of Car Parks A and B from Cyberport on 23 December 2009.  But Probus did not proceed with the purchase of Flats A and B.  As a result, Probus forfeited its deposits under the Principal Agreements.  Cyberport then re-sold Flats A and B (each with carpark) for a total consideration of $46,000,000.

17.  Neither Mr. Au nor Ms. Verona Lai (Mr. Au’s wife) (the 2 directors of Probus) have ever met Lauw Senior.  The sale and purchase of the Bel-Air Properties were effected through Mr. Frankie Lau.  It was Mr. Frankie Lau who persuaded Lauw Senior to buy the Bel-Air Properties and Ms. April Tong who persuaded Ms. Lai to agree to selling the same.

B.  Fortune Asset Action

18.  By a Preliminary Agreement dated 4 November 2007 Fortune Asset agreed to sell and De Monsa to buy the 20th to 23rd floors of Silver Fortune Plaza in Central.  The total consideration was $163,568,400 and completion was to take place on 15 May 2008.

19.  On 3 December 2007 De Monsa sub-sold the 20th to 23rd floors at $186,432,800, thereby earning a profit of nearly $23,000,000.

20.  On 7 December 2007, by another Preliminary Agreement, De Monsa agreed to buy the 11th, 12th, 13th and 15th floors (there being no 14th floor) of Silver Fortune Plaza from Fortune Asset.  The total consideration was $211,056,000 with completion to take place on 30 June 2008.

21.  Both Preliminary Agreements were signed by Lauw Senior.  The sales of the floors at Silver Fortune Plaza to De Monsa were effected through Ms. Emily Wong and Ms. Fiona Cheung of Centaline.  No one from Fortune Asset’s personnel ever met Lauw Senior during the relevant period.

22.  In relation to the purchase of the 11th to 15th floors, a Formal Agreement was signed on 2 July 2008 following much negotiation between the parties.  The Formal Agreement stipulated a completion date of 31 December 2008 at the latest.  Pursuant to the Preliminary and Formal Agreements, as at 30 July 2008 De Monsa had provided deposits and part payments totalling $42,211,200.

23.  Shortly before completion, K C Ho & Fong (De Monsa’s solicitors) unsuccessfully asked for an extension of time.

24.  On 31 December 2008 De Monsa failed to complete.  Fortune Asset accepted De Monsa’s repudation by letter dated 2 January 2009.

C.  Multi Star Action

25.  On 6 December 2007 Multi Star agreed by a Head Agreement to buy an Office at the Lippo Centre from Winfull at $33,480,000. Multi Star paid a deposit of $4,017,600.  Completion was to take place on 5 pm on 21 July 2008.

26.  On 8 January 2008 Multi Star sub-sold the Office by entering into a Provisional Agreement with De Monsa.  The consideration was $38,329,200.  De Monsa paid a deposit of $4,599,504.  Completion was to take place by 3 pm on 21 July 2008. 

27.  The Provisional Agreement declared that Midland was “the Agent for both the Vendor and the Purchaser”.  The sub-sale of the Office to De Monsa was effected through Ms. Zoe Hui and Ms. Kanee Fung of Midland.

28.  De Monsa failed to complete on 21 July 2008. Multi Star terminated the Provisional agreement on 23 July 2008.  It treated De Monsa’s deposit as forfeited in consequence. 

29.  Multi Star in turn failed to complete under its Head Agreement with Winfull.  Multi Star’s deposit was forfeited to Winfull. Winfull later re-sold the Office to Hatton for $20,217,600.

D.  Lauw Senior

30.  Although Lauw Senior was jointly interviewed by the parties’ psychiatric experts (Prof. Felice Lieh Mak for the 3 Vendors, Midland and Centaline; Dr. Jenny Tsang for the 2 Purchasers), he did not give evidence before me.

31.  Oral evidence as to Lauw Senior’s state of mind at the time of the relevant agreements was instead given by Lauw Junior, Mr. Law Wai and Ms. Liza Ho.  Mr. Law is the General Manager of Treble and De Monsa.  Ms. Ho is a clerk at a De Monsa subsidiary.  In this sub-section, I shall record (without necessarily accepting) the gist of the evidence given by Lauw Junior, Mr. Law and Ms. Ho on the state of Lauw Senior’s mental health in 2007 and 2008. 

32.  Lauw Senior (now 85) suffered a serious fall at home in March or April 2007. 

33.  According to Mr. Law, following that accident Lauw Senior “became another man”.  Lauw Senior’s memory is said by Mr. Law to have deteriorated rapidly so that Lauw Senior was often “at a loss and disoriented”.  Lauw Senior apparently “could not remember his own decisions” and would give Mr. Law “incoherent, illogical instructions which were the exact opposite to his antecedent instructions”.

34.  Mr. Law alleges that, since the accident, Lauw Senior “appeared to have lost his mind”. This was seemingly manifest in the way that “[h]is investment style changed completely”.  Lauw Senior became “impulsive, irrational and would agree to buy almost any property that was suggested to him”. This was especially true (according to Mr. Law) in relation to estate agents who had gained his trust and confidence such as Mr. Frankie Lau, Ms. Emily Wong and Ms. Fiona Cheung. 

35.  Mr. Law says that the news that Lauw Senior was an easy target for estate agents “spread like wildfire in estate agency circles”.  Numerous agents descended upon Lau Senior’s office with the result that between March 2007 and September 2008 Lauw Senior through Treble and other companies had acquired “about 140 properties involving consideration in excess of HK$6.5 billion”.

36.  Mr. Law adds that Lauw Senior would forget about purchases which he had agreed just a few hours before and would ask about contracts which he had signed as if he did not know about their contents. Sometimes Lauw Senior “did not recognize us” and at other times he “spoke to us in Indonesian”.

37.  In July 2007 Lauw Senior was finally persuaded to see a doctor.  He was found to be suffering from left chronic subdural haematoma. 

38.  On 31 July 2007 Lauw Senior underwent brain surgery.

39.  Lauw Senior returned to work in August 2007. 

40.  But Mr. Law says that Lauw Senior did not get better.  His mental aberrations continued.  By way of example, Mr. Law refers to “an unknown lady” showing up at Lauw Senior’s office in 2009.  The lady claimed to have been offered a job by Lauw Senior, but the latter denied having offered any job.  Lauw Senior instead apparently asked someone at the office to pay the lady $20,000 to go away.

41.  Mr. Law claims that Lauw Senior complained in 2010 that someone had “stolen steel from our warehouse”.  When Mr. Law pointed out that Lauw Senior had no warehouse in Hong Kong (as opposed to Indonesia), the old man lost his temper and accused everyone in the office (including Mr. Law) of being “brain dead”.

42.  Ms. Ho stated that “on one occasion” Lauw Senior seems to have mistaken his chauffeur for a taxi driver and offered a fare to the chauffeur.

43.  Ms. Ho recalled that Ms. Emily Wong, Ms. Fiona Cheung and Ms. Zoe Hui told her on 2 separate occasions that Lauw Senior was forgetful. The estate agents apparently said this because (according to Ms. Ho) on one day Lauw Senior said “OK” to something and then forgot about it later.

44.  Based in Indonesia, Lauw Junior was not much involved in the day-to-day affairs of the Purchasers.  He occasionally visited his father in Hong Kong, but only for a day or so.  For this reason, I regard Lauw Junior’s evidence as to his father’s mental condition as of minimal probative value.

45.  Lauw Junior said that, although he knew his father’s memory was bad following his fall and surgery, he did not appreciate the severity of the problem until April 2009.  At that time, he was “shocked to learn from Mr. Law Wai that my father did not recover from his operations in 2007 and that he has been suffering from severe dementia”.

46.  Despite himself being a director of Treble, De Monsa and some other companies run by Lauw Senior, it was not until April 2009 that Lauw Junior initiated steps to remove his father from the board of those companies.  He took that action because of his father’s dementia. 

47.  Before April 2009 Lauw Junior did not interfere in the companies’ management for two reasons despite believing that his father was behaving erratically.  First, his father’s Hong Kong businesses were his father’s own and, apart from signing formal documents from time to time as a director, Lauw Junior was not involved with the same.  Second, Lauw Junior felt that he had to show the deference which a son owes to a father in traditional Chinese thinking.

III.  DISCUSSION

48.  Counsel have provided the Court with a consolidated list of the specific issues to be determined by this trial.  In this section, I propose to answer those questions.

A.     Fundamental Issues

A1.  Whether Lau Senior was suffering from dementia when he signed the sale and purchase agreements which are the subject matter of the 3 actions?

49.  This was the key question which the psychiatric experts were asked to answer.

50.  At common law, there is “no fixed standard of mental capacity” required to enter into a contract.  Instead, “[w]hat is required in relation to each particular matter or piece of business transacted, is that the party in question should have an understanding of the general nature of what he is doing”.  See Chitty on Contracts (30th ed.), para. 8-069.

51.  I regard A1 as requiring me to decide whether, when entering into any particular contract for the purchase of property, Lauw Senior understood the nature of the obligation being incurred.  A1 asks me to determine whether, by reason of dementia, Lauw Senior was incapable of appreciating the nature of a contract.  An answer to A1 hinges on a finding by me that at any material time Lauw Senior was so incapacitated mentally as to be unable to understand the contractual obligation that he was apparently undertaking.

52.  I stress that my task is to decide whether Lauw Senior was suffering from dementia during the material period (that is, October 2007 to July 2008).  This involves a retrospective evaluation.  Even on a premise that Lauw Senior has been suffering from dementia since (say) April 2009, I must determine with regard to the available evidence (including the opinions of Prof. Mak and Dr. Tsang) whether on the balance of probability Lauw Senior was demented when he entered into contracts on 18 October 2007, 7 December 2007 and 8 January 2008 such that he could not understand what he was doing.

53.  In answering A1, I bear in mind the insight of Kekewich J in Birkin v. Wing (1890) 63 LT (NS) 80 (at 82) to the follow effect: “[I]f it is a mere question of selling a particular property for a particular sum of money, or purchasing a particular property for a particular sum of money on certain conditions, the [mental] capacity required is not, at least necessarily, so great as that required in a testamentary disposition of any complication”.  Not much is required by way of mental capacity to understand the binding nature of a contract.

54.  Within the context of those preliminary observations, I now consider the criteria for diagnosing dementia.  On that there is no real dispute among the experts.

55.  The applicable criteria for diagnosing dementia are those in DSM-IV-TR (“Diagnostic and Statistical Manual of Mental Disorders Fourth Edition Text Revision”). 

56.  DSM-IV-TR states (at p.148): “The essential feature of a dementia is the development of multiple cognitive deficits that include memory impairment and at least one of the following cognitive disturbances: aphasia, apraxia, agnosia, or a disturbance in executive functioning”.  “Aphasia” is the “deterioration of language function”. “Apraxia” means an “impaired ability to execute motor activities despite intact motor abilities, sensory function, and comprehension of the required task”. “Agnosia” is the “failure to recognise or identify objects despite intact sensory function”.  Executive functioning involves “the ability to think abstractly and to plan, initiate, sequence, monitor, and stop complex behaviour”.

57.  The information required by the experts to determine whether Lauw Senior suffered from dementia between October 2007 and July 2008 included Lauw Senior’s medical records (such as reports, brain scans and lab tests), psychiatric records, and hospitalisation records.  The witness statements and discovery in the present case (including accounts of press interviews with Lauw Senior and summaries of Lauw Senior’s property transactions) were also made available for consideration by the experts.

58.  As for clinical observation, the experts had the opportunity jointly to interview Lauw Senior in July 2010. They could then take stock of his general appearance and behaviour, his mode, his speech, his perception, his orientation and memory, his cognitive functions, his ability to concentrate and his insight.

59.  A battery of psychometric and clinical tests can be performed to detect dementia.  For example, as possible tests, Prof. Mak identified Mini-Mental State Examination, Wechsler Adult Intelligence Scale (revised Cantonese version), Wechsler Memory Scale Revised, Chinese Dementia Rating Scale, Rey Complex Figure Test, Rey 15 Figure Test, Force Choice Symptom Validity Test and TOMM. 

60.  But Lauw Senior has only ever been subjected to 3 types of such tests.

61.  Dr. Chiu Siu Ning (Lauw Senior’s treating psychiatrist) administered a Mini-Mental State Examination (Chinese version) (MMSE-C) in April 2009.  Lauw Senior scored 16/30 (indicating severe cognitive impairment). 

62.  Dr. Tsang also administered the MMSE-C on Lauw Senior.  She obtained a result of 19/30, indicating the presence of cognitive impairment.

63.  In April 2009, Dr. Chiu performed the Clock Drawing Test (CDT) on Lauw Senior.  Lauw Senior scored 2, indicating a significant degree of cognitive impairment. 

64.  Lauw Senior scored 9 (moderately abnormal to severely abnormal range) when he took the CDT as administered by Dr. Tsang.

65.  Ms. Emma Wong (a clinical psychologist) further administered the MMSE on Lauw Senior in April 2009.  She found a score of 23/30.  She commented: “He performed relatively poor on items tapping his orientation to time, place, attention and memory especially on verbal recall.” She concluded that “[i]n view of [his] premorbid functioning, his score was worthy for further evaluation of cognitive impairment for dementia”.

66.  Ms. Wong also tried the Chinese Dementia Rating Scale (CDRS).  Lauw Senior scored 95/114.  That (according to Ms. Wong) was “significantly below the cut-off score for diagnosing dementia”.  This suggested to Ms. Wong that Lauw Senior’s “overall cognitive functioning was within the demented range”.  

67.  Neither Prof. Mak nor Dr. Tsang asked for more psychometric tests to be conducted on Lauw Senior.  Both were satisfied that the totality of materials before them was enough for them to take a view as to Lauw Senior’s state of mind between October 2007 and July 2008.

68.  Dr. Tsang and Prof. Mak both ruled out the possibility that Lauw Senior was suffering from Alzheimer’s disease at the material time.

69.  But they took diametrically opposed views as to whether he had dementia over the same period.

70.  Dr. Tsang was adamant that Lauw Senior was demented at the material time.  Her diagnosis was one of vascular dementia due to multiple etiologies (causes), especially head trauma (Lauw Senior’s fall) and chronic subdural haematoma.  In coming to her conclusion, Dr. Tsang says that she relied on the totality of available evidence, including witness statements filed in each action and medical records relating to Lauw Senior’s condition produced by various doctors and specialists both before and after April 2009.

71.  Prof. Mak, on the other hand, concluded that Lauw Senior was not suffering from dementia during the relevant period.  In her view, Lauw Senior’s forgetfulness “may be due to benign senile forgetfulness”.  So Lauw Senior’s “lapses in memory ... are a nuisance but never a problem”.  In other words, Lauw Senior being over 80, there is nothing surprising about his being forgetful.  His memory may not be good, but that does not mean he is demented.

72.  As for vascular dementia, Prof. Mak ruled this out.  She acknowledged MRI findings of 24 March 2009 showed changes in Lauw Senior’s brain indicative of small vessel infarct.  But that (Prof. Mak pointed out) could not by itself be construed as a basis for a diagnosis of vascular dementia.  This is because abnormal changes in the brain (such as infarcts) may be possible without the subject showing symptoms of dementia and vice versa.  There is no previous MRI with which to compare the MRI findings of March 2009.  There is thus no way to tell when the suspected infarcts occurred.  There are previous CT scans.  Although CT scans are not as sensitive as MRI, for what they are worth the previous CT scans show no infarcts.

73.  The examination of Lauw Senior by Prof. Mak and Dr. Tsang was conducted in Mandarin, Cantonese, and (occasionally) Fukienese. Lauw Senior had no difficulty in switching from one language to another.

74.  More pertinently, Prof. Mak recorded in her report a detailed exchange with Lauw Senior on the process of buying and selling of real estate.  Prof. Mak thought that Mr. Lauw’s dexterity in language switching and his coherent responses to her open-ended questions about the buying and selling of property demonstrated that he was not suffering from dementia.  The exchange on property transactions definitively showed (Prof. Mak contended) that even at the time of the interview on 29 July 2010 Lau Senior understood the nature of a contract.

75.  In light of her exchanges with Lauw Senior, Prof. Mak expressed the view that no further psychometric tests were needed. From her own observations of Lauw Senior, she felt able to conclude that he “had been consciously underperforming on the MMSE, CDRS and the Clock Drawing Test” previously administered to him.

76.  I prefer Prof. Mak’s views over those of Dr. Tsang. 

77.  Despite Dr. Tsang saying that she based her opinion on the entirety of evidence, it seems to me (as submitted by the Vendors’ respective counsel) that she placed significant weight on the statements of Mr. Law Wai and Ms. Liza Ho.  Those statements struck me as far too vague and unreliable to constitute cogent evidence of Lauw Senior’s state of mind at the material times.

78.  Ms. Ho’s evidence was peripheral.  She described isolated, random incidents as signs of Lauw Senior’s forgetfulness and mental confusion. But she could not specify when such incidents (including Lauw Senior apparently treating his chauffeur as a taxi driver) took place. 

79.  Nor is it possible to attach weight on Ms. Ho’s evidence without any idea of the context in which alleged remarks were made. 

80.  For example, Ms. Ho’s evidence as to what Ms. Emily Wong, Ms. Fiona Cheung and Ms. Zoe Hui purportedly said about Lauw Senior’s forgetfulness is of no probative value.  Rather than showing forgetfulness on Lauw Senior’s part, the alleged remarks by the estate agents could, depending on context, demonstrate canniness on Lauw Senior’s part. Thus, one day, he might have told the estate agents that he was interested in various properties in order to hear what they had to say in respect of the same.  Whereas, on the next day, having decided not to buy those properties, he could have feigned not to recall his previous expression of interest.

81.  Mr. Law’s evidence struck me as contradictory, speculative and unreliable.  Let me give examples. 

82.  On the one hand, Mr. Law confirmed that Lauw Senior made all final decisions relating to the sale and purchase of properties (including whether De Monsa or some other company should bring an action in connection with a given property transaction).  On the other hand, Mr. Law maintained that Lauw Senior could not understand simple property transactions. But the fact that Lauw Senior appears to have known how to drive hard bargains, make occasional handsome profits, and deal with solicitors and estate agents indicates to me that he was capable of understanding the nature of a contract at the material times.

83.  Mr. Law made much of Lauw Senior’s alleged sudden transformation from long-term investor before his fall to short-term speculator afterwards.  Lauw Senior is said to have behaved irrationally in buying up large amounts of real estate over a short period of time.  However, I am unable to deduce mental incapacity from the mere fact that Lauw Senior may have succumbed to the temptations of chasing a bubble and turning a quick profit.  He may have been foolish in accumulating many properties, but that hardly indicates that he was demented.

84.  In relation to the mysterious lady who showed up at Lauw Senior’s offices, Mr. Law asserted that Lauw Senior had failed to recognise her or remember that Lauw Senior had promised her a job.  But, in cross-examination, Mr. Law accepted that he did not know whether or not Lauw Senior had actually offered the woman a job. Presumably, Mr. Law would have had no idea either whether, even if Lauw Senior had promised the lady a job in the past for whatever reason, Lauw Senior had changed his mind and decided to extricate himself from a delicate situation by denying all knowledge of the woman or a job offer.  Without more information, this incident of the unknown lady hardly qualifies as evidence of anything.

85.  Mr. Law asserted that Lauw Senior would often suddenly speak out in Indonesian for no apparent reason.  But Mr. Law admitted that he had no knowledge of Indonesian and was only acquainted with a few words of Fukienese.  Thus, it is perfectly possible that Lauw Senior was muttering to himself or even swearing at Mr. Law in Lauw Senior’s first languages (Indonesian or Fukienese) in the manner that sane people sometimes do when angry or upset.  Without knowing what it was that Lauw Senior was actually saying in whatever language he was speaking, I do not see how I (or anyone else) can come to a conclusion that Lauw Senior had gone off his mind at the relevant time.

86.  I think that, like Prof. Mak, Dr. Tsang ought to have (but did not) approach the evidence of Mr. Law and Ms. Ho with a healthy scepticism.

87.  More troubling is the fact that Dr. Tsang did not seem to attach any weight to the evidence from the estate agents involved (for example, Mr. Frankie Lau, Ms. Emily Wong and Ms. Fiona Cheung). 

88.  The gist of the estate agents’ evidence was that there was nothing remarkable about Lauw Senior’s state of mind after he returned to work following brain surgery.  He may have been forgetful, but he had been forgetful long before his fall and surgery.  The fact is that Lauw Senior bought properties in such bulk that, not surprisingly, he could not always remember details such as the unit number or address of the properties which he had just bought.

89.  When this last point was put in cross-examination, Dr. Tsang brushed aside the estate agents’ evidence of their dealings with Lauw Senior with the cryptic remark that such dealings were more or less the same as Lauw Senior’s exchanges with Prof. Mak and Dr. Tsang on 28 July 2010.  But, not having been present when the estate agents dealt with Lauw Senior, how could Dr. Tsang have known or even assumed this?

90.  Dr. Tsang discounted the evidential value of the exchange on buying and selling property which Prof. Mak recorded.  When asked why, she gave a pedantic and artificial gloss to some of Lauw Senior’s responses as recorded by Prof. Mak.

91.  To my mind, Dr. Tsang took evidence far too literally and narrowly, without considering the same as a whole and in context.  For instance, she noted that, during the exchange on buying and selling property, Lauw Senior repeatedly asked whether one or other of the psychiatrists wished to buy property from him.  Dr. Tsang stressed that this was symptomatic of mental impairment.  But I fail to see why that should be the case.  Lauw Senior could simply have been enjoying a joke at the expense of the 2 experts.

92.  It is true that, despite being told that the 2 experts were doctors, Lauw Senior referred to them from time to time as lawyers.  But no one disputes that, being well over 80, Lauw Senior suffers from the benign senility that typically affects elder persons. That is a far cry from saying, contrary to the obvious thrust of the exchange on buying and selling properties recorded by Prof. Mak, that Lauw Senior did not understand the nature of a contract.

93.  More worrying was the impression that I obtained from Dr. Tsang’s cross-examination that she was acting more as an advocate of the Purchasers’ cause as opposed to an independent expert. 

94.  For example, she appeared to me too prone to dismiss any significant feat of memory demonstrated by Lauw Senior during the joint interview as little more than “procedural memory”. In other words, according to Dr. Tsang, Lauw Senior’s short-term memory was significantly impaired, but his ability to recollect routines (such as buying and selling property and switching readily in casual conversation among Cantonese, Mandarin and Fukienese) which he had repeatedly performed during his long life was relatively more intact.

95.  This seemed to me to be largely assertion on Dr. Tsang’s part, made when placed in a difficult spot by counsel in the course of cross-examination.  I do not accept that Lauw’s Senior’s continuing language dexterity and his ability to describe in detail what happens in a sale and purchase contract and what happens if one does not go through with the transaction, are purely aspects of long-term “procedural memory”.  There may be procedures involved.  But plainly there are other mental functions involved beyond recalling an oft-repeated routine.  Such functions would include the employment of logical reasoning in order to provide appropriate responses to questions on specific aspects of the buying and selling process.

96.  I note that Dr. Tsang also too casually dismissed, as mere “procedural memory,” Lauw Senior’s ability to discriminate between 2 schools of Buddhism in the course of talking with Prof. Mak.

97.  Both doctors referred to Lauw Senior’s clinical records.

98.  Following his operation, contemporaneous records suggest that Lauw Senior’s mental condition gradually improved prior to his return to work.

99.  To my mind, a telling point is that, despite Lauw Senior having been seen on numerous occasions in 2007 and 2008 by Dr. Norman Chan and Dr. Clarence Leung, none of them saw fit to refer Lauw Senior to a psychiatrist to be treated for mental illness.  Had Lauw Senior’s dementia been manifest during the relevant period, it is inconceivable that Dr. Chan and Dr. Leung would have done nothing.  This commonsense consideration strongly supports the estate agents’ evidence and undermines Dr. Tsang’s analysis.

100.  I am further fortified in my views as to Lauw Senior’s state of mind during the relevant period by the fact that, as late as the latter half of 2008, Lauw Junior himself considered that his father was mentally alert enough to give evidence to the Singapore Court in connection with a claim by Over & Over Ltd. 

101.  Over & Over is a Hong Kong company of which Lauw Senior and Lauw Junior are the only shareholders and directors.  Both appeared before the Singapore Court, a medical certificate having been obtained by Over & Over from Dr. Clarence Leung in support of Lauw Senior’s ability to give evidence. 

102.  In the end, Woo Bih Li J decided that he could “not give much weight to [Lauw Senior’s] testimony since there was evidence that he had a failing memory and could not remember much of what had happened in the past” (Over & Over Ltd. v. Bonvests Holding Ltd. [2008] SGHC 226 (at para.7).  But such finding does not detract from the point that, being aware of Lauw Senior’s “failing memory” (presumably equivalent to what Prof. Mak has termed “benign senility”), Lauw Junior and Dr. Leung apparently thought him fit enough to understand the nature of a Court proceeding and give useful evidence in connection with the same. 

103.  Dr. Tsang attempted to make something out of evidence that Lauw Senior missed some appointments with his doctors and is recorded as being unable to use an insulin pen.  But I am unable to deduce anything from the fact that, for whatever reason, Lauw Senior failed to attend on several occasions or seemed “unable” (or unwilling?) to use an insulin pen on himself.

104.  In short, I find no cogent evidence that Lauw Senior in the material period could not understand the nature of a contract or was of unsound mind due to dementia.  I reject the evidence of Mr. Law Wai and Ms. Liza Ho as having probative value insofar as Lauw Senior’s state of mind during the relevant period is concerned.  I accept the evidence, in particular, of Mr. Frankie Lau, Ms. Emily Wong and Ms. Fiona Cheung as to the absence of any signs of dementia (as opposed to mere forgetfulness due to old age) in Lauw Senior during the material time. 

105.  As between the experts, I prefer Prof. Mak’s diagnosis on the matter as the more balanced on the available evidence.  I reject Dr. Tsang’s opinion as partisan and unreliable.

106.  I would answer “no” to A1.

A2.  If yes, whether the Vendors were aware of Lauw Senior’s incapacity by imputation of knowledge of a third party.

107.  In light of my answer to A1, this question does not arise.

108.  But I should briefly state my conclusions on a sub-issue thrown up by A2.  That sub-issue is as to whether Midland can be said to have been acting as Probus’ or Multi Star’s agent and Centaline as Fortune Asset’s agent in effecting sales of the relevant properties.

109.  In my view, Midland was acting at all material times as Probus’ agent.  I reach this conclusion on the basis of the Estate Agency Agreements which Probus signed appointing Midland as its agent for the marketing of the Bel-Air Properties.

110.  In the case of Fortune Asset, its Re-Amended Statement of Claim pleads that Centaline was “engaged ... to act as its agent in and about the sale of its ... interests in [Silver Fortune Plaza].” Accordingly, I conclude that Centaline was acting at all material times as Fortune Asset’s agent.

111.  As for Multi Star, Mr. Sha Man Chun admitted in evidence that “Midland ... acted as agent ... for the Plaintiff in respect of the Head Agreement and for the Plaintiff ... in respect of the Sub-sale Agreement”.

A3.    In any event:-

3.1   (For Probus action) Whether the alleged knowledge of Midland at the time of the Provisional Agreements has any relevance given that those agreements were superseded by the formal SP Agreement which were signed by Lauw Senior on 8 November 2007 without any involvement of Midland.

3.2   (For Fortune Asset action) Whether the alleged knowledge of Centaline at the time of the Provisional Agreement on 7 December 2007 has any relevance given that it was superseded by the Formal Agreement which was signed by Lauw Senior on 2 July 2008 for De Monsa without any involvement of Centaline.

112.  Given my answer to A1, this issue ceases to be material.

113.  Between October 2007 and January 2008, there was no evidence of dementia in Lauw Senior which would have led the estate agents or anyone else to conclude that Lauw Senior did not understand what he was doing.  Accordingly, the estate agents had no knowledge (whether actual or constructive) of Lauw Senior’s supposed dementia.  There is no knowledge to be imputed to the Purchasers as the estate agents’ principals.  No question of alleged knowledge being superseded therefore arises.

B.     Issue of Contract Law

B3.  If the answer to A1 is “yes” but the answer to A2 is “no,” whether the Purchasers can nevertheless argue that the Vendors cannot rely on the principle in Imperial Loan Co. Ltd. v. Stone [1892] 1 QB 599 by virtue of the fact that the Purchasers are companies and not natural persons.

114.  The answer to A1 being “no,” this issue does not arise as drafted.

115.  The principle in Imperial Loan was summarised by Lopes LJ thus (at 602):-

“A contract made by a person of unsound mind is not voidable at that person’s option if the other party to the contract believed at the time he made the contract that the person with whom he was dealing was of sound mind. In order to avoid a fair contract on the ground of insanity, the mental incapacity of the one must be known to the other of the contracting parties. A defendant who seeks to avoid a contract on the ground of his insanity, must plead and prove, not merely his incapacity, but also the plaintiff’s knowledge of that fact, and unless he proves these two things he cannot succeed.”

116.  The Vendors argued on the basis of Imperial Loan that, even if Lauw Senior was demented when he signed the subject contracts, the Purchasers were not entitled to avoid the contracts.  The Vendors submitted that, at the material times, Lauw’s mental incapacity had not been manifest to the estate agents dealing with him on behalf of the Vendors.  Accordingly, the Purchasers (the Vendors said) cannot show that the estate agents or their principals knew of Lauw Senior’s mental incapacity.  At the time of contracting, the estate agents and their Vendor principals honestly believed that Lauw Senior was of sound mind and knew what he was doing. 

117.  In response, Mr. Charles Sussex SC (representing the Purchasers) contended that Imperial Loan was not applicable at all. 

118.  This is because that case concerned an agent of unsound mind acting for a principal who was a natural person.  In the present case, the principal Purchasers are companies. Companies can only act through agents.  Mr. Sussex submitted that, in consequence, a correct analysis depends on the application of the law of agency.

119.  Bowstead & Reynolds on Agency (19th ed) (at p.660) states:-

“The actual authority of an agent, whether conferred by deed or not and whether expressed to be irrevocable or not, is determined by the ... supervening mental incapacity of either the principal or the agent...”

120.  De Monsa’s articles of association provide (in Art.39) that “[t]he office of a Director shall ipso facto be vacated : ... (b) [i]f he be found lunatic or becomes of unsound mind”. 

121.  Trebles’ articles of association adopt Art.72(e) of Table A (1975 Ed.).  Art.72(e) provides that “[t]he office of director shall be vacated, if the director ... is found lunatic or becomes of unsound mind”.

122.  In Re Bodega Company Ltd. [1904] 1 Ch 276 (at 283) Farwell J considered what happened upon an act being done or an event occurring as stipulated in articles such as those just mentioned above.  In such case:-

“The [director’s] office is vacated automatically, and if his co-directors wish him still to act, he has to be re-elected in the usual way; or the casual vacancy has to be filled up under the article to that effect. The directors have nothing whatever to do with the vacation of the office by an event over which they have no control, and with which they have nothing to do except to satisfy themselves that the fact has happened, if the fact has been put in issue.”

123.  Mr. Sussex’ general argument was that, pursuant to agency law and the Purchasers’ articles of association, Lauw Senior must be treated as automatically ceasing to be director insofar as Lauw Senior is held to have been of unsound mind during a relevant time.  Lauw Senior’s actual authority to act on behalf of the Purchasers would have terminated in consequence of his directorships being automatically vacated. 

124.  In entering into contracts with the Vendors or their estate agents after termination of his directorships, Lauw Senior (Mr. Sussex continued) would have been acting outside the scope of his actual authority.  Subject to the Vendors being able to show apparent authority for Lauw Senior to act as he did or some act of ratification by a person having actual authority to ratify, the contracts (Mr. Sussex concluded) must be void (not just voidable) given Lauw Senior’s lack of authority.

125.  Although I have found Lauw Senior to have been of sound mind when he entered into the material contracts, the applicability or otherwise of Imperial Loan is not thereby rendered wholly moot. 

126.  Plainly, because Lauw Senior was of sound mind when he signed the contracts, there is no issue as to whether the estate agents dealing with him knew that he was of unsound mind. But there is one aspect of Mr. Sussex agency argument which still needs to be considered. 

127.  That aspect is this: Mr. Sussex stressed that, before Lauw Senior’s brain operation on 31 July 2007, a consent form authorising the operation had to be signed.  The doctors did not believe that Lauw Senior had the mental capacity to appreciate the risks involved in the operation and so he could not meaningfully sign the consent form.  The form had to be signed by someone else on Lauw Senior’s behalf.

128.  Mr. Sussex submitted that, given agency law and the application of the Purchasers’ articles, Lauw Senior must have ceased to be a director of the Purchasers when he was believed to be mentally incapable of consenting to his own operation. 

129.  Mr. Sussex observed that Lauw Senior was never formally re-instated as a director by any board or company resolution. As a result, according to Mr. Sussex, whatever Lauw Senior’s mental state after his operation, Lauw Senior still lacked actual authority to enter into the relevant contracts from October 2007 onwards. Subject to evidence of apparent authority or ratification, the latter contracts (Mr. Sussex reasoned) would be void.

130.  There is no dispute that a consent form was signed in the manner which I have described.  Thus, despite Lauw Senior possessing (as I have found) sufficient mental capacity in the material period (October 2007 to January 2008) to understand a contract, there remains an issue as to the validity of Mr. Sussex’ agency argument.  That argument is more properly the subject of Issue C4 and so I shall deal with it below in answer to C4.

C.     Issue of Agency Law

C4.  Whatever the answers to the foregoing questions:-

4.1   Whether Lauw Senior’s loss of mental capacity terminated, as a matter of law, his actual authority to enter into the agreements in question on behalf of the Purchasers?

4.2   If yes, whether Lauw Senior nevertheless continued to have actual authority to enter into the agreements in question on behalf of the Purchasers?

4.3   Even if Lauw Senior did not have such actual authority, whether Lauw senior nevertheless had apparent authority to enter into the agreements in question on behalf of the Purchasers?

4.4   If Lauw Senior had such apparent authority:-

(1)   Whether the Purchasers had in fact terminated Lauw Senior’s apparent authority to enter into the agreements in question on their behalf?

(2)   If so, whether the Purchasers ever notified the Vendors of the termination of Lauw Senior’s apparent authority?

131.  Despite the principle Bowstead & Reynolds cited above, no case appears to have specifically considered the effect on an agency of an agent becoming of unsound mind.  As far as agents are concerned, the principle stated in Bowstead & Reynolds only represents the editors’ opinion on the likely legal consequence of an agent’s supervening mental incapacity.  

132.  In contrast, many cases deal with the supervening insanity of a principal (for example, Drew v. Nunn (1879) 4 QBD 661, Yonge v. Toynbee [1910] 1 KB 215, Gibbons v. Wright (1954) 91 CLR 423).  Those cases hold that an agent’s mandate automatically terminates upon a principal becoming of unsound mind.

133.  The Vendor’s counsel argued that I should not treat the supervening mental incapacity of an agent as having the same result.  The situation of an agent becoming unsound in mind was not (counsel suggested) analogous to that where a principal loses mental capacity.

134.  Where a principal becomes of unsound mind, the principal can no longer appreciate the attributes of any transaction concluded by the agent on the principal’s behalf.  In those circumstances (counsel’s argument proceeded), it is natural to treat the relationship of agency as having been terminated by the principal’s insanity and any transactions concluded by the agent as void in consequence of the principal’s lack of understanding.  Indeed, in the absence of the appointment of some guardian for the insane principal, it is unclear who can terminate the agency if it is not terminated automatically by operation of law.

135.  But (counsel contended) where an agent becomes insane, the principal will still be of sound mind and able to appreciate the nature of a transaction purportedly concluded by the agent on the principal’s behalf.  There is no reason to treat the agency as automatically avoided.

136.  As a matter of policy, where an agent becomes of unsound mind, it would be fairer to place the burden of formally terminating the agency on the principal.  Unless the principal officially terminates the agency, the law should deem the same to continue (despite the agent’s incapacity) so that innocent third parties dealing with the agent are not unfairly prejudiced by their contracts or transactions being treated as void.

137.  This does not necessarily mean (counsel stressed) that the principal will be bound by any and every contract concluded by an insane agent.  For example, where a third party deals with a lunatic agent knowing the same to be insane, then Imperial Loan will apply.  The principal may in such situation treat the transaction concluded by the lunatic agent as voidable by the principal (as opposed to automatically void).  This possibility will prevent a third party from unscrupulously taking advantage of an obvious mental incapacity on the part of the agent. The third party would not, under Imperial Loan, be able to exploit an innocent principal by entering into unfair contracts through an agent known to be of unsound mind.

138.  In Akai Holdings Ltd. v. Kasikornbank FACV No. 16 of 2009, 8 November 2010 (at para.52), Lord Neuberger NPJ observed that “[i]n a commercial context, absent dishonesty or irrationality, a person should be entitled to rely on what he is told”. This should be the case even if “this may occasionally produce harsh results” since “it enables people engaged in business to know where they stand”.

139.  Applying the spirit of Lord Neuberger’s dictum to the effect at law of an agent’s supervening mental incapacity, I prefer the submissions of Vendors’ counsel over those of Mr. Sussex. 

140.  In a commercial context, where a third party deals with an agent in good faith, without any inkling that the agent has gone insane, the third party should be able to treat the transaction as binding on the principal.  The burden should be on the principal as the person for whose benefit the agent was appointed formally to terminate the agency.  It should prima facie be for the principal then, if the latter wishes to protect one’s self against the supervening mental illness of an agent, to monitor the agent’s continuing mental capacity to act on the principal’s behalf. 

141.  The principal should not be entitled to avoid an inconvenient contract by simply relying on the fact that an agent has gone insane.  That would place an intolerable and unfair burden on third parties dealing with the principal’s agent to monitor the agent’s mental capacity.  Third parties should be able to rely instead on what an agent does and states, where the latter’s acts and statements are within the actual authority conferred upon the agent at the time of appointment.

142.  Consequently, I do not think that Bowstead & Reynolds reflects what should be the position in relation to the supervening mental incapacity of an agent.

143.  I do not think that the Purchasers’ articles take the matter further. 

144.  The suggestion is that, regardless of the common law on an agent’s unsoundness of mind, the articles provide for the automatic termination of Lauw Senior’s directorship and his mandate to act on the Purchasers’ behalf. 

145.  But what is the event said to trigger the application of the articles?  It is Lauw Senior’s lack of capacity to consent to a brain operation.  The purpose of that operation was to relieve the pressure on Lauw’s brain due to chronic subdural haematoma.  If successful, the operation would mean that Lauw Senior would regain his previous mental capacity and understanding.  On my findings, that is what happened. Between the time when he returned to work following his operation and at least until January 2008, Lauw Senior on the evidence seemed back to normal as far as mental functioning was concerned.  Any “unsoundness of mind” on Lauw Senior’s part due to the haematoma was only temporary.

146.  The references in the Purchaser’s articles to a director becoming of unsound mind cannot be referring to mere temporary mental dysfunction due to conditions which may be relieved or removed.  It would not be conducive to the day-to-day operation of companies if directors were deemed to have vacated their office every time that they suffered from some temporary, readily remediable, mental incapacity (including momentary unconsciousness). 

147.  The articles must only apply to a director becoming of unsound mind in some permanent way.  The articles would only apply where a permanent mental incapacity has occurred or been found.  Such was not the situation when Lauw Senior was admitted to hospital.  His problem was cured and he resumed business as usual within a few months.  I am in those circumstances unable to hold that the articles resulted in Lauw Senior being deemed to have vacated his directorships. 

148.  Let me now assume that I am wrong in my conclusions as to the common law on an agent becoming of unsound mind and as to the true construction of the Purchaser’s articles.  Even then, the Purchasers would still be in difficulty.

149.  This is because Lauw Junior, the Purchasers’ only other director, despite realising that there was something wrong about Lauw Senior’s mental capacity following Lauw Senior’s fall and operation, allowed Lauw Senior to continue entering into property transactions on behalf of the Purchasers.  In so permitting Lauw Senior to act, the Purchasers’ boards (acting through Lauw Junior) held Lauw Senior out to the world as having the authority to buy and sell property.  This holding out meant that Lauw Senior had both actual and apparent authority to transact business on behalf of the Purchasers. 

150.  Actual authority arises because “the [Purchasers’] board[s] by their conduct over many months had acquiesced in [Lauw Senior] acting as their chief executive and committing [the purchasers] to contracts without the necessity of sanction from the board”. See Hely-Hutchison v. Brayhead Ltd [1967] 1 QB 549 (at 584F).

151.  Apparent authority arises because the boards (acting through Lauw Junior) “held out the alleged agent [Lauw Senior] as having the authority to bind the principal”. See Akai Holdings (at para.75). Note also the following dictum of Newnes JA in Auxil Pty Ltd. v. Terranova (2009) 260 ALR 164 (para. 176) (cited in Akai Holdings at para.45):-

“A representation creating an apparent authority of an agent may be made in a number of ways but the most common form of representation by a principal is by conduct, that is, by permitting the agent to act in the management or conduct of the principal’s business. By permitting the agent to act in the management or conduct of the business, the principal thereby represents to anyone dealing with the agent that he or she has authority to do those acts on behalf of the company which an agent authorised to do acts of the kind which he or she is in fact permitted to do normally does in the ordinary course of such business.”

152.  The representations of Lauw Senior’s authority were made, among other persons, to the estate agents who dealt with Lauw Senior on behalf of the Vendors.  On that basis, the representations may be deemed to have been made to the Vendors as the estate agents’ principals.  But I think that the representations by the Purchasers’ boards can also be regarded as being made directly to the world at large, including the Vendors.

153.  Once a representation of apparent authority is established, reliance on that representation will normally be presumed.  See Akai Holdings (at para.75). 

154.  There is no evidence that the representations of Lauw Senior’s authority were terminated until April 2009 at the earliest when Lauw Senior was persuaded to step down as director.

155.  In answer to C4, I therefore conclude that Lauw Senior had actual and apparent authority to enter into the relevant contracts with the Vendors.

D.     Issue of Affirmation

D5.  Whether the Purchasers, in any event, affirmed the subject transactions so that the Purchasers cannot disavow the sale and purchase agreements in question?

156.  In light of my findings, D5 does not arise.

157.  The Vendors argued that, even if Lauw Senior had been of unsound mind at the material time, his solicitors put forward Formal Agreements for approval and signature by the Vendors.  Such conduct by the solicitors meant (the Vendors suggested) that the Purchasers had affirmed the transactions originally entered into by Lauw Senior.

158.  The difficulty with the Vendors’ argument is that, on the evidence, the solicitors acted in accordance upon instructions from Mr. Law who in turn was acting on instructions from Lauw Senior.  An agent acting outside the scope of actual authority cannot by that agent’s own representations clothe the unauthorised acts with apparent authority.  See Akai Holdings (at paras. 63-71). 

159.  Thus, if he had ceased to be a director or agent due to unsound mind, Lauw Senior could not validate any unauthorised acts by instructing third parties to behave as if his acts were valid.  The solicitors’ conduct in tendering the Formal Agreements to the Vendors for execution could not then amount to affirmation of Lauw Senior’s acts by the Purchasers.

E.     Issue of Relief

E6.  What is the measure of damages for which the Purchasers are liable to the Vendors?

160.  Probus claims the differences between (1) the purchase prices for the 2 lots of Bel-Air Properties under the agreements with Treble and (2) the agreed market values of the 2 lots at the time of breach (9 December 2008). That differences amount to $7,778,773 and $7,609,867 respectively. 

161.  Probus further claims $57,168.40 as wasted or additional expenses incurred by reason of Treble’s breach.

162.  Probus is prepared to give credit for the amounts of $4,963,860 and $4,922,460 paid by Treble by way of deposit and part-payment.

163.  Probus’ damages accordingly come to $5,559,488.40.  In my view, the latter amount correctly represents the measure of Probus’ loss.  Interest at 1% over HK$ prime should run on that amount from date of breach (9 December 2008) until judgment and thereafter at the judgment rate.

164.  Probus also seeks a declaration that Treble is liable to indemnify it against damages which may be payable to Cyberport under the Principal Agreements for the Bel-Air Properties.  Since Cyberport has not actually brought an action against Probus for compensation, I will stay Probus’ claim for an indemnity sine die with liberty to restore for directions in the event that Cyberport should commence an action in the future.

165.  Fortune Asset claims a net total of $34,345,453. 

166.  That total includes the difference in price between (1) the sale price of the 11th to 15th floors of Silver Fortune Plaza and (2) the agreed market value of the same on the date of breach (31 December 2007).  The total also includes fees and other costs wasted as a result of De Monsa’ breach.  The total, however, gives credit for De Monsa’s deposits and part payments.

167.  In my view, Fortune Asset is entitled to the net total amount.  Interest will run on the same from 31 December 2007 until judgment at 1% over HK$ prime and thereafter at the judgment rate until payment.

168.  Multi Star claims $4,267,296, representing the difference between the purchase price under the Provisional Agreement with De Monsa and the purchase price under the Head Agreement with Winfull. The claim gives credit for the difference between the deposits paid by Multi Star to Winfull on the one hand and by De Monsa to Multi Star on the other.

169.  Multi Star argues that it is entitled to the lost profit because the Provisional Agreement made it clear that Multi Star was selling to De Monsa as confirmor.  Accordingly, Multi Star says that it was reasonably foreseeable at the time of contracting that a breach by De Monsa would lead to Multi Star in turn breaching its contract with Winfull.

170.  The normal measure of damages is the difference between the sale price of a property and the value of the property at the time of breach.  The problem is that Multi Star has not presented any evidence of the price of the Lippo Centre Office at the time of De Monsa’s breach.  The normal measure of damages can be departed from in appropriate circumstances.  But the Court must be satisfied that any damages awarded would have been within the reasonable contemplation of the parties at the time of contracting as the likely consequences of a breach.

171.  Here the evidence was that the market was “crazy” in late 2007 and early 2008.  Multi Star and De Monsa were both in the business of buying and selling property for a profit at the time.  De Monsa would have contemplated that, in the volatile market conditions then prevailing, the Lippo Centre Office was likely being purchased by Multi Star to earn a quick profit on re-sale to De Monsa. 

172.  In that case, a default on De Monsa’s part could foreseeably trigger a corresponding default on the part of Multi Star under the Head Agreement on commercial grounds.  This is because a falling market would have meant that it would be difficult (if not impossible) for Multi Star to re-sell at a quick profit.  Ironically, for what it is worth, Lauw Senior is quoted by an article in Eastweek Magazine dated 13 May 2009 as himself characterising default as a rational and likely option in a falling market. Lauw Senior reportedly said (in translation): “I’m a businessman through and through.  When I see a drop in price, how can I still buy?  For example, when I buy it is $20,000 and if now it’s $10,000, surely I’ll default.” 

173.  In those circumstances, it seems to me that Multi Star’s lost profit is an appropriate measure of its damages.  There will be judgment for Multi Star in the amount of $4,267,296.  Interest on that amount will run at 1% over HK$ prime until judgment and thereafter at the judgment rate.

174.  Multi Star asks for an indemnity against future claims by Winfull.  There will be a stay of that part of Multi Star’s claim sine die with liberty to restore for directions in the event that Winfull should commence an action in the future.

F.     Issue of Vendors’ Claims against Estate Agents

F7.  In the event that:-

7.1   Probus in unsuccessful in its claim against Treble, whether Midland is liable for breach of its terms of retainer/duty of care to Probus and (if yes) what is the measure of damages?

7.2   Fortune Asset is unsuccessful in its claim against De Monsa, whether Centaline is liable for breach of its terms of retainer/duty of care to De Monsa and (if yes) what is the measure of damages?

175.  The questions do not arise.

G.     Issue of Midland’s Counterclaim against Treble

G8.  Whether Treble is liable to pay Midland agreed damages in the sum of $661,848 and $656,328 respectively under cl. 10(a) of the Provisional Agreements dated 18 October 2007?

176.  I would answer “yes” to G8.

177.  Treble argues that at the time when Probus signed the Provisional Agreements the relevant sums had not been filled in cl.10(a).  Following Probus’ signature, the Provisional Agreements were sent to Treble with the sums filled in cl.10(a).  That (Treble argues) constituted an offer to vary the contract contained in the Provisional Agreements in Midland’s favour.  That offer to vary (Treble asserts) was never accepted and so cannot be binding.

178.  I am not persuaded by the argument. 

179.  Treble (acting through Lauw Senior) authorised Midland to approach Probus with an offer to buy the 2 lots of Bel-Air Properties.  Under that authority, the sums in cl.10(a) were to be filled in by Midland depending on the prices finally agreed with Probus for the Bel-Air Properties.  This is because the sums in cl.10(a) were to be calculated as percentages of the final agreed prices for the Bel-Air Properties. 

180.  When the prices were finally agreed with Probus, Midland acting on its prospective authority from Treble filled in cl.10(a) with the appropriate amounts based on the final agreed prices for the Bel-Air Properties.  After that, not surprisingly, Treble did not take up the point that Midland had wrongly filled in cl.10(a).  Treble did not even plead the allegation.  It was not until belatedly at trial that Treble asserted that Midland had no right to fill in cl.10(a).

IV.     CONCLUSION

181.  There will be judgment for Probus against Treble in the amount of $5,559,488.40.  Interest will run on that amount at 1% over HK$ prime should run from 9 December 2008 until judgment and thereafter at the judgment rate.

182.  Probus’ claim for an indemnity is stayed sine die with liberty to restore for directions in the event that Cyberport commences an action in the future.

183.  Probus’ claim against Midland is dismissed.

184.  There will be judgment for Fortune Asset against De Monsa for $34,345,453.  Interest will run on that amount from 31 December 2007 until judgment at 1% over HK$ prime and thereafter at the judgment rate until payment.

185.  Fortune Asset’s claim against Centaline is dismissed.

186.  There will be judgment for Multi Star against De Monsa in the amount of $4,267,296.  Interest on that amount will run at 1% over HK$ prime until judgment and thereafter at the judgment rate.

187.  Multi Star’s claim for an indemnity will be stayed sine die with liberty to restore for directions in the event that Winfull commences an action in the future.

188.  There will be judgment for Midland against Treble in the amounts of $661,848 and $656,328.  Interest will run on those amounts from the date of Midland’s Counterclaim (2 February 2010) until judgment at 1% over HK$ prime and thereafter at the judgment rate until payment.

189.  The claims of Treble against Probus and  Midland, of De Monsa against Fortune Asset and Centaline, and of De Monsa against Multi Star respectively are dismissed.

190.  There will be liberty to apply.

191.  There will be an Order Nisi as follows:-

(1)   Probus is to have its costs as against Treble.

(2)   As against Probus, Midland is to have its costs of defending itself against Probus’ claims.

(3)   As against Treble, Midland is to have the costs of its Counterclaim and the costs of defending itself against Treble’s claims.

(4)   Probus may claim from Treble such costs as it pays to Midland under (2).

(5)   Fortune Asset is to have its costs as against De Monsa.

(6)   As against Fortune Asset, Centaline is to have its costs of defending itself against Fortune Asset’s claims.

(7)   As against De Monsa, Centaline is to have its costs of defending itself against De Monsa’s claims.

(8)   Fortune Asset may claim from De Monsa such costs as it pays to Centaline under (6).

(9)   Multi Star is to have its costs as against De Monsa.

(10)   All costs are to be taxed on a party and party basis.

(11)   There will be certificate for 2 counsel.

(A. T. Reyes) Judge of the Court of First Instance High Court

In HCA 2723/2008:

Ms. Yvonne Cheng, instructed by Messrs Mayer Brown JSM, for the Plaintiff by Original Action and 1^st Defendant by Counterclaim

Mr. Charles Sussex, SC and Mr. Jean-Paul Wou, instructed by Messrs K.C. Ho & Fong, for the 1^st Defendant by Original Action and the Plaintiff by Counterclaim

Mr. Anderson Chow, SC and Mr. Anson M.K. Wong, instructed by Messrs Iu, Lai & Li, for the 2^nd Defendant

In HCA167/2009:

Ms. Lisa Wong, SC and Ms Grace Chow, instructed by Messrs F. Zimmern & Co., for the Plaintiff by Original Action and 1^st Defendant by Counterclaim

Mr. Charles Sussex, SC and Mr. Jean-Paul Wou, instructed by Messrs B.C. Chow & Co., for the Plaintiff by Counterclaim and the 1^st Defendant by Original Action

Ms Shannon Leung, instructed by Messrs Cheung & Choy, for the 2^nd Defendant

HCA 1004/2009:

Mr. Samuel K.Y. Chan, instructed by Messrs Baker & McKenzie, for the Plaintiff

Mr. Charles Sussex, SC and Mr. Jean-Paul Wou, instructed by Messrs B.C. Chow & Co., for the Defendant

Please refer to CACV270/2010, CACV271/2010 & CACV272/2010 for the relevant appeal(s) to the Court of Appeal.