Centaline Property Agency Ltd v. Lee Po Chu Feona
Read the full judgment text of HCA 2054/2016 on BabelCite. This High Court CFI judgment was delivered on 31 January 2023.
1. Together with HCA 2421/2016, this case is the aftermath of the failed sale and purchase transaction concerning House D5 and car parking spaces at Regalia Bay, 88 Wong Ma Kok Road, Hong Kong (“the Property”) in 2015. The vendor held the defendant (“Lee”), the purchaser, liable for repudiatory breach and forfeited her deposits paid. The plaintiff (“Centaline”), the estate agent, subsequently commenced the present action against Lee as the party in default in the fallen deal for contractual dama
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HCA 2054/2016 [2023] HKCFI 261 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2054 OF 2016 _________________
_________________ Before: Deputy High Court Judge Leung in Court Dates of Hearing: 19-21 July and 21 December 2021 Date of Judgment: 31 January 2023 _________________ J U D G M E N T _________________ 1.Together with HCA 2421/2016, this case is the aftermath of the failed sale and purchase transaction concerning House D5 and car parking spaces at Regalia Bay, 88 Wong Ma Kok Road, Hong Kong (“the Property”) in 2015. The vendor held the defendant (“Lee”), the purchaser, liable for repudiatory breach and forfeited her deposits paid. The plaintiff (“Centaline”), the estate agent, subsequently commenced the present action against Lee as the party in default in the fallen deal for contractual damages representing unpaid commission. Lee then commenced HCA 2421/2016 against her solicitor handling the transaction for professional negligence. The present action was tried immediately after HCA 2421/2016 before this court. Judgments in both cases are now handed down at the same time. BACKGROUND 2.Centaline is a licensed estate agency company in Hong Kong. 3.Lee was at the material time a business woman and investor in real estates. For a number of years prior to the transaction in question, Lee had engaged the service of Centaline, specifically its agents Mr Stanley Tso (“Stanley”) and Mr Gary Tso (“Gary”), who are brothers, which also led to the conclusion of a number of her transactions. 4.Lee used to own and reside in another house in Regalia Bay years before the transaction in question. Minded to purchase another property in the neighbourhood in early 2015, Lee got in touch with the agents and this time also another agent of Centaline, Mr Simon Shea (“Shea”). 5.In April 2015, Shea introduced and accompanied Lee to view various properties in and around the Stanley on Hong Kong Island. The Property in Regalia Bay was one of them. After Shea and Lee had viewed the Property for the second time, it was decided to initiate negotiation with the vendor of the Property. 6.Centaline acted for the both sides of the proposed sale and purchase. 7.The owner of the Property was Winning Streak Group Ltd (“WSGL”), which was in turn owned by Unique Focus Holdings Ltd (“UFHL”). They will be referred to below as the vendor, unless otherwise specified. The person on the vendor’s side with whom the agents liaised was a Mr Anson Tam (“Tam”). 8.By the end of April 2015, Shea has sent by email a blank provisional sale and purchase agreement form to Tam. The form used was for the sale and purchase of issued share capital of the corporate owner. Subsequently, Shea requested Tam for copies of the business registration documentations of these companies. The documentations supplied revealed that they were companies incorporated in the British Virgin Island (“BVI”). 9.On 7 May 2015, Lee executed the following documents with a view to offering to purchase the Property at HK$105 million by way of transfer of the shares in its corporate owner:
10.Meanwhile, Gary introduced Mr Lawrence Tse (“Tse”) of Messrs Joyce Chan & Co (“JC”), solicitors, to Lee with a view to his acting as solicitors for her in the deal. On 8 May 2015, Tse suggested to Shea to incorporate 6 proposed rider provisions by way of schedule to the PSPA (“the Riders”). 11.Later on 8 May 2015, Shea sent by email to Tam and the solicitors acting for the vendor, Messrs Leung & Lau (“L&L”), the PSPA together with the Riders. 12.On 11 May 2015, Shea sent by email to Tam, Gary and Stanley the PSPA appended with the Riders executed by the parties to the deal and initialled by Tam and Lee. 13.The documents executed by the parties to the deal in respect of the Property contained, amongst others, the following terms in English and Chinese: The PSPA
The Commission Agreement
The Agency Agreement
14.The Riders in the PSPA provided in English and Chinese:
15.Effectively, by the time when they entered into the PSPA, the parties to the deal knew that the sale and purchase of the Property would be effected by transfer of the shares in the owner of the Property, WSGL, from its sole shareholder, UFHL, as the vendor to Lee as the purchaser. Lee also paid the initial deposit in the sum of HK$5.25 million (“the 1st Deposit). 16.The deadline fixed by clause 3 of the Riders for the delivery of the documents relating to the WSGL by the vendor to Lee ended on 4 June 2015. That was not complied with. Nevertheless, Lee paid the further deposit in the sum of HK$5.25 million on 8 June 2015 (“the 2nd Deposit”). 17.Eventually Lee as the purchaser proceeded to execute the formal sale and purchase agreement, which Tam also executed on behalf of the UFHL as the vendor of the shares in WSGL (“the Formal Agreement”). 18.The Formal Agreement dated 22 June 2015 contained, amongst others, the following terms in English and Chinese:
19.In other words, notwithstanding the non-compliance with clause 3 of the Riders of the PSPA on the part of the vendor, the parties proceeded with the deal and agreed by the Formal Agreement that the deadline for the vendor’s production of the documents for the due diligence review would now be 22 September 2015. The deadline for the production of title deeds remained to be not less than 21 days prior to completion. 20.The parties then ensued in negotiation in respect of the payment of the further deposit on or before 8 July 2015 (“the 3rd Deposit”). 21.By letter dated 7 July 2015, Lee through JC requested to extend the time for payment. This was refused by letter dated 8 July 2015 from L&L on behalf of the vendor. 22.The 3rd Deposit was not paid on 8 July 2015. By letter to JC dated 16 September 2015, L&L on behalf of the vendor sent an ultimatum to Lee for her payment of the 3rd Deposit by noon of 18 September 2015 or else it would treat her as repudiating the Formal Agreement. 23.In reply, Lee through JC by letter dated 18 September 2015 requested to postpone her payment of the 3rd Deposit until after first, the vendor has produced the corporate documents of WSGL for the due diligence review, and second she was satisfied with the result of such review. 24.By letter dated 19 September 2015, L&L on behalf of the vendor rejected the above request of Lee. Considering that Lee was in repudiation, L&L communicated its client’s acceptance of her repudiation of the Formal Agreement and treated the same as terminated. The 1st and the 2nd Deposits in the total sum of HK$10.5 million were forfeited. 25.Centaline commenced the present action in 2016, claiming against Lee for damages in the total sum of HK$1,575,000 equivalent to the total commission payable by UFHL and Lee pursuant to the Agency Agreement and the Commission Agreement on the basis that Lee was the party in default in the fallen deal. 26.Lee denies liability, and essentially raises the following dispute:
WITNESSES 27.Lee gave evidence. So did Stanley and Shea. Gary was not called to testify, and his witness statement was expunged accordingly. Different from her position at the case management stage, Lee elected at the commencement of the trial, and was allowed, to give evidence in English. 28.Where credibility is in issue, there should be no dispute as to the approach in the assessment of the evidence, which has been explained in the often cited authorities of Hui Cheung Fai v Daiwa Development Ltd HCA 1734/2009 (8 April 2014) at §§77-82; Credit One Finance Limited v Yeung Kwok Chi & Ors [2020] HKCFI 2450 at §22; Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §37. 29.As an overview, this case does not differ from any given case where much may be said about the evidence of the witnesses. Adopting the approach explained in the authorities mentioned above, one would differentiate the witness who was genuine in trying to tell the truth, albeit not successfully all the time and at times even mistaken in his recollection, and the witness whose evidence invites scepticism in crucial aspects. 30.The background and experience of Lee by the time of the transaction in question, particularly in relation to her contentions, must be relevant. She was about 54 years old at the time of the transaction. She has studied business, including a course on contract law, in the United States, and was graduated with a degree in business. She is an experienced business woman in textile trading, and has been an executive director of a related listed company in Hong Kong. She has been an investor in real estate since the late 1980s. By the time of the transaction in question, she has transacted about 30 property deals, and held some of her properties through some 10 companies including BVI companies. There was also an instance of sale and purchase of property by way of transfer of shares in the corporate owner of the property back in 2009. 31.Shea joined Centaline in 2004, and was the senior director of its Peak and South District branch at the material time. Stanley joined Centaline in 2006, and was at the material time senior manager at its Causeway Bay branch. He left Centaline in 2016. There is no suggestion or evidence that either of them has been subject to any litigation or disciplinary action in relation to their service as estate agent. WHETHER LEE WAS/IS BOUND BY THE AGENCY AGREEMENT AND THE COMMISSION AGREEMENT 32.There is no dispute that Lee had signed on the Agency Agreement, and pursuant to that agreed to pay 5% commission to Centaline. The trite law is that she who willingly signed a document intending that to have legal effect is bound by it irrespective of whether she cared to read or actually understood its content, in the absence of circumstances vitiating the document: see Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334 at §84; Bank of China (Hong Kong) Ltd v Fung Chin Kan (2002) 5 HKCFAR 515 at §51. 33.As to the Commission Agreement, Lee also contends that it is not binding because the commission agreement which she signed had subsequently been altered without her authority, knowledge or consent. The alterations consisted of: (i) the addition of the name of UFHL with an arrow/line linking it to the name of WSGL; (ii) the addition of the company chop of UFHL attested by Tam as the vendor; and (iii) the signature of Shea for Centaline as the agent. She also contends that she was not informed by Centaline that the Property would be sold and purchased by way of transfer of shares in BVI companies. The Commission Agreement is therefore tainted by non est factum and not binding on her. 34.As mentioned, the PSPA, the Agency Agreement and the Commission Agreement were signed by Lee on 7 May 2015. To examine Lee’s contentions, it is relevant to examine what happened among the parties concerned prior to the execution of the documents as well as what happened when and after the documents were executed. Knowledge about sale and purchase of the Property by way of transfer of shares in BVI company 35.The case of Lee, according to her pleadings and witness statement, is that she had made clear to, and was given to understand by, the agents of Centaline that it would be a sale of the Property by WSGL to her. She claims no knowledge or understanding that the sale and purchase of the Property would be effected by way of transfer of shares in WSGL between UFHL and her or that the companies were BVI companies. 36.The evidence suggests otherwise. 37.Lee acknowledged in court that after viewing the Property at the end of April 2015, Shea informed her during their conversation at a pizza restaurant that the sale and purchase of the Property would be effected by way of transfer of shares of its corporate owner. She also confirmed in court that on 4 May 2015, which was prior to the signing of the various agreements, Shea repeated the same to her on the telephone via WhatsApp. 38.The fact was that Shea indisputably knew that the sale and purchase of the Property would be effected by transfer of shares in its corporate owner. He also knew that they were BVI companies on the vendor’s side. There was no reason and, more importantly, no way that he would and could somehow withhold that from Lee. 39.The contemporaneous documents also suggest that the fact that the vendor’s side was made of BVI companies, and that the sale and purchase of the Property would be effected by way of share transfer were known by Lee by the time of the execution of the contractual documents. 40.The email correspondence between Shea and Lee in the latter half of April 2015 shows the proactive effort of the former in introducing and analysing the desirability of alternative properties to the latter. That was only to be expected of an estate agent. Amongst such correspondence in the afternoon of 24 April 2015, Shea specifically referred to various completed transactions in that week for the purpose of illustrating the desirability of the Property. The comparison was made in terms of not only the age, size and price of the properties but also the fact that those completed transactions could not be effected by way of company acquisition, ie transfer of shares, whereas that for the Property could be. Hence the recommendation that the Property would be a very attractive pick of all available. 41.Similar exercise was seen in the correspondence between Shea and Lee on 4 May 2015 with once again emphasis on the price and the fact that the transaction could be effected by way of acquisition of company. This led to Lee’s instruction on 7 May 2015 that Shea might test the offer price as well as check the company on the vendor’s side. The transaction in respect of the Property possibly being effected by way of transfer of company shares had to be on the mind of the parties concerned by then. 42.When it came to the preparation for the transaction documents, Shea was seen to adopt from the outset the form of provisional agreement used for sale and purchase of property by way of transfer of the issued share capital and shareholders’ loan of its corporate owner. As mentioned, this happened by the end of April 2015. Pursuant to the instruction of Lee mentioned above, Shea also checked on the background of the vendor by asking Tam by email on the same day for the business registration documents of WSGL and UFHL. In other words, the names of the companies on the vendor’s side were also known by then. 43.Shea received Tam’s reply on the same day with attachment of WSGL’s BVI business registration certificate. Besides forwarding the same to Stanley, Shea on the same day also requested Tam for the business registration document of UFHL. That aside, that the corporate owner of the Property being a BVI company should be known on 7 May 2015 at the latest. 44.As mentioned, it is most unlikely that the above information known by the agents would or could somehow be withheld from Lee. The fact was that it was on this basis that Shea proceeded to prepare the provisional sale and purchase agreement of issued share capital and shareholder’s loan of the corporate owner of the Property for Lee’s signature. By the time when Lee signed the PSPA on 7 May 2015, it was already printed on it the name of WSGL as the company of which the issued shares and the shareholder’s loan were the subject matter and UFHL as the vendor of those shares and loan. The further email correspondence since then evidencing how the Riders were subsequently added to the PSPA upon the suggestion of Tse of JC followed until the completion of execution of the PSPA. By the time when the execution of the PSPA was complete, clause 3 of the Riders has been amended in that the time for UFHL to produce documents relating to WSGL to Lee for the due diligence review was changed from 14 days to 28 days from the date of the PSPA, ie 4 June 2015. 45.There is dispute as to whether or not Lee was actually minded to purchase a property which could be effected by way of acquisition of shares in its corporate owner so as to save stamp duty. Evidence in respect of the apparently substantial difference in the stamp duty payable if the transaction was an ordinary sale and purpose of real estate was also given. That may be a matter of incentive. However, with the other evidence discussed above which shows that the purchase could be effected by way of acquisition of company was clearly discussed and that it was proceeded with accordingly, proof of such incentive as a matter of fact is not vital. 46.Where the Agency Agreement (albeit dated 20 April 2015) and the Commission Agreement were signed by Lee on 7 May 2015, it is not likely that Lee had no idea by then that the sale and purchase of the Property would be effected by transfer of company shares, and that BVI companies were involved. It was equally unlikely that Shea and the other agents would somehow withhold that from her. There was no conceivable reason for the agents to do so or for any one of them to believe that they could do so. 47.According to Lee, which is in dispute, she made enquiry with a banker prior to the signing of the PSPA in respect of mortgage whereby she was informed that the bank would take time to approve a mortgage application where the property would be purchased by way of transfer of shares in BVI company. So even her own case, if true, would contradict her denial of knowledge in this respect. 48.The circumstances discussed above also serve to downplay the significance of the other dispute raised by Lee, namely that as to the name of the vendor written on the Commission Agreement when she signed it. As mentioned, she claims that when she signed it, only the name of WSGL was written there and as the vendor. What can now be seen on the agreement is that the name of UFHL was also written on the top with a line drawn connecting these two company names. 49.First, where the shares in WSGL were known to be the subject matter representing the ownership of the Property being the asset of that company, it would simply be incorrect to name WSGL as the vendor as if it was selling its own shares. Had that been left to remain like that, as Lee claims, that would have made no sense factually and legally. Her evidence in court to the effect that that was her understanding, considered against her background and experience, is simply hard to accept. 50.Lee’s counsel somehow see support of her case from the solicitors’ letter before action on behalf of Centaline in that they also referred to WSGL as the vendor. In the sense of sale of the Property, which was what Lee was after from the outset, such reference could only be taken as a mistake, and at some rate an obvious one, and more importantly does not have real significance. It was the contemporaneous knowledge and understanding of the parties concerned which counts. 51.It is pointed out on behalf of Lee that the contracting parties’ initials were supposed to be found next to any amendment, and therefore the absence of that suggests that such amendment was added without approval. Yet according to Shea, the fact was that the name of UFHL was indeed there and the line was drawn to join the two company names for, once again, obvious reason, when the Commission Agreement was signed. The reason for the lack of the contracting parties’ initials next to these handwritten content of the document was that they were there in the first place and hence no question of subsequent amendment. All evidence considered, I find what Shea said in this respect to be credible and preferable to Lee’s allegation. 52.That said, and merely for argument’s sake (as it was not the contention or evidence), where these details were filled in by hand by Shea, any failure to state UFHL as the vendor on the Commission Agreement might not have been surprising. One has to bear in mind that the form of the agreement primarily catered for the sale and purchase of landed property, and in that context, WSGL as the owner would have been perceived as the vendor. Yet even assuming that that were the case, the more pertinent consideration here is what bearing that could have had on the understanding on the part of Lee as to the true state of affairs. As discussed, there could not realistically be any basis for doubting the state of affairs being that it was a sale and purchase of the Property by transfer of company shares whereby UFHL would have to be the vendor of its shares in WSGL as stated in the PSPA. Lee did not need the Commission Agreement to tell her that, when she also signed the other documents in connection with the deal. 53.Second, Lee claims that she was only asked by Shea to sign at the bottom of the document as the purchaser. She did not read the PSPA when she signed it except for the dates, including the date of the PSPA and the completion date. She came to realise that the vendor was UFHL which was a BVI company only weeks later. 54.With her background and experience in handling business and property investment documentation by the time of the PSPA, this is the most unattractive contention. That Lee would either be incapable of being vigilant or be prepared to be so casual in signing contractual document in property deal with HK$105 million at stake, in my judgment, is inherently and as a matter of probability incredible. It should be noted that even counsel for Lee describe in submission that she was not a submissive and gullible lady. Counsel for Centaline describes in submission that Lee manifested herself in the trial as a savvy, astute and shrewd lady who would not have handled such a matter so casually. Both observations, I find, are fair depictions of the kind of person Lee was at the material time. 55.Third, as far as Lee claims that she came to realise that the vendor in the deal was UFHL instead of WSGL only on 8 June 2015, there is no dispute that she had a telephone discussion with Tse of JC on 12 May 2015. Given the state of knowledge on the part of Tse well before then, including his involvement prior to his formal engagement by Lee at the provisional agreement stage as mentioned above, it is inconceivable that somehow the parties on the vendor’s side and their BVI identities would be left out of mention entirely in their communication. That was so, particularly when her own case according to her witness statement was that she herself referred to her lack of experience of purchasing a BVI company during their conversation. Counsel for Centaline submits that Lee was evasive in her evidence in court in this respect. I share that scepticism. 56.Further, there is no evidence in respect of what she did as a result of the alleged sudden discovery of the true identity of the vendor. In her evidence, she did say she enquired with Tse about that during their meeting on 17 June 2015 but was prepared to leave it to Tse at the end. In court, she added for the first time that she even had to argue with Tse on this subject. The precise details of what warranted the alleged argument between Lee and her own solicitor in this respect, I find, are not easy to follow in such context particularly when the PSPA was signed before the formal engagement of JC. 57.In any event, had the alleged sudden awareness of what she claims to be of such significance that warranted hours of argument between Lee and her own solicitor, one would have expected evidence of her specific instruction in that respect to Tse at the end. The undisputed fact was that apart from paying the 2nd Deposit pursuant to the PSPA on 8 June 2015, she was further prepared, and indeed proceeded, to enter into the Formal Agreement subsequently. Irrespective of the details of the dispute between Lee and her solicitors in this respect, which is the subject matter of HCA 2421/2016, this was the fact as viewed by the agents of Centaline and the vendor. NON EST FACTUM 58.It is trite that the defence of mistake as to fact may sustain only upon proof of the following elements:
See Bank of China (Hong Kong) Ltd v Tsang Sheung Bun HCMP 5256/2003 (16 November 2012) at § 92 (citing Cartwright, Misrepresentation, Mistake and Non-disclosure (5th ed) at §§13-56 to 13-58; Wing Hang Credit Limited v Hui Chun Kit Benjamin & Another HCMP 732/2009 (3 November 2011) at §93. 59.In view of her background and experience as discussed above, that Lee would claim any inability to understand the contractual documents must be rejected as a matter of fact. 60.In view of the discussion of the circumstances as well as the state of knowledge and understanding on the part of Lee by the time of the signing of the contractual documents, there is no real basis for suggesting that the contract or identity of her contractual counterpart differed fundamentally from what she understood or believed to be when she signed the documents. That would be so, even assuming (for argument’s sake) that the name of UFHL was added and joined with WSGL as the vendor only subsequent to her signing of the Commission Agreement as discussed above. 61.From another perspective, if Lee indeed approached the signing of the contractual documents the manner that she alleges, Lee would have been careless beyond what would be expected of a person with her background and experience in the circumstances of the case. She still would not have been entitled to take advantage of the defence of non est factum. 62.The defence of non est factum is rejected. THE DEFAULTING PARTY IN THE DEAL 63.Lee contends that she was ready, willing and able to complete the transaction on her part. However, insofar as the dispute in the present action is concerned, whether Lee was so as alleged is not quite the question. As pointed out by counsel for Centaline, where the transaction was in fact terminated, and Centaline is claiming pursuant to the Commission Agreement whereby the party that was in default of completing the sale and purchase would be liable to compensate Centaline the amount equivalent to the commission payable by both sides of the fallen deal, the question is really which of the vendor or purchaser was in default. The issue is governed by the relevant terms of their contracts. 64.Lee contends that the vendor was the defaulting party in that it failed or refused to deliver the corporate documents of WSGL on or before 4 June 2015 in breach of clause 3 of the Riders of the PSPA or within a reasonable time thereafter. 65.This contention has no merit. 66.The key is that clause 3 of the Riders of the PSPA has ceased to be the relevant binding contractual obligation once the same has merged into the Formal Agreement which Lee not only entered into but the same also contained specific provision for the time of performance of the same obligation. Lee is taken to have not insisted upon her contractual right in respect of clause 3 of the Riders of the PSPA after 4 June 2015. In Rickards v Oppenhaim [1950] 1 KB 616, the court said (at 623):
In Tse Ping Shun David & anor v Lai Ho Man Shan Grace and anor HCA 105/2006 (23 March 2009), the court said:
67.Therefore, the parties became bound by the Formal Agreement and their deal became governed by its terms. If anything, any breach will be that of the terms of the Formal Agreement, not the PSPA: see 怡居地產有限公司 對 蔡路加 HCSA 36/2004 (25 July 2005) at §32. The legal position and understanding of the parties are reinforced by clause 11.8, which was the entire agreement clause of the Formal Agreement. 68.In the premises, it is futile for Lee to still contend that the vendor was in breach of the PSPA. Somehow Lee also seeks reliance on clause 13.1 of the Formal Agreement in support of her contention that she could not be taken to have waived her rights for the vendor’s breach of the PSPA by entering into the Formal Agreement. The argument must be rejected, as clause 13.1 provides for waiver only in respect of the rights under the Formal Agreement and their breach. They could have nothing to do with the rights under the PSPA. 69.Insofar as the rights under the Formal Agreement are concerned, the deadline for the vendor to provide the documents for the due diligence review was 22 September 2015. However, the deadline had yet to arrive by the time when the deal fell through upon the vendor’s communication of its acceptance of the repudiation of the Formal Agreement on the part of Lee by letter of L&L dated 19 September 2015. 70.According to clause 3.1(3) of the Formal Agreement, the 3rd Deposit in the sum of HK$5,250,000 was payable on 8 July 2015. Clause 5.1 provided that time under the Formal Agreement was of the essence. Lee did not comply with that. Notwithstanding that, the vendor apparently waived the non-compliance, and by further negotiation and ultimatum dated 16 September 2015 imposed the new deadline of noon 18 September 2015 as mentioned above. Time was again expressly made essential. The vendor was contractually entitled to do so: see Rickards (above) at 624-625. 71.The response of Lee through JC by their letter dated 18 September 2015 sought to subject her obligation to pay the 3rd Deposit to conditions precedent, namely that the vendor having produced WSGL’s documents for due diligence review and that she was satisfied with the result of the review. It is trite that unilateral variation or addition of extraneous condition in relation to the contractual payment obligation (here clause 3.1(3)) amounts to repudiatory breach: see Chitty on Contract (33rd ed) at §22-032. As such, it was open to the vendor to accept the repudiation and terminate the Formal Agreement, which it did while the agreement was still alive for the benefit and burden of both sides. 72.Once the Formal Agreement was so terminated, the vendor was discharged from its contractual obligation yet to be performed under the agreement, including that to provide documents for the due diligence review by 22 September 2015 and to prove title by the completion date. 73.In the circumstances, as a matter between the vendor and Lee under the Formal Agreement, it was Lee who defaulted and repudiated, which the vendor rightfully accepted and thereby terminated the agreement. As such, Centaline’s contractual right to compensation for the entire commission amount expected from the deal arose. 74.Lee then argues that Centaline is in any event not entitled to the contractual commission or compensation because the Commission Agreement literally catered for an ordinary sale and purchase of real estate but the subject matter of the deal between the parties was sale and purchase of shares, albeit for the purpose of conveyance of the Property. If Lee is right, that would mean neither the vendor nor Lee would be liable to pay commission to Centaline irrespective of whether the deal proceeded to completion. If accepted, that would have been a trump argument sufficient for striking out the claim herein. 75.I cannot accept Lee’s such argument in the circumstances of this case. 76.Counsel for Centaline cites the New Zealand case of Allen v Anderson and Anor [1969] NZLR 951, which provides some analogy to the consideration of the circumstances of the case. One of the shareholders signed an appointment of the agent on commission to sell the property (or business) of their company. The shareholders later sold the shares in the company to the purchasers introduced by the agent. The shareholders refused to pay commission on the ground that it was not a sale of property under the commission agreement and the sale of the shares in the company was a different transaction. The court took a common sense approach in construing the commission agreement instead of technically and narrowly, and said (at 953):
77.In the present case, whilst the Commission Agreement took the form deployed by Centaline for an ordinary sale and purchase of real estate, it was at all material times the understanding and intention of the parties, as manifested by the PSPA and the Agency Agreement signed at the same time, that this was but the manner chosen by the parties to effect the transfer of interest in the Property owned by the corporate vendor. By analogy, the broad and common sense principles advocated by the court in the above case must prevail over the argument of Lee that would virtually deprive the agent of the commission regardless of the fact that the parties concerned proceeded in accordance with such intention and understanding to completion. As another instance, counsel for Centaline cited the Canadian case of Kanata Realty Ltd v Ottawa Air Cargo Centre Ltd [1993] OJ No 1761 at §§23; 43-44. The way I see it is that the evidence of Lee in this respect did not actually go to such extreme as the argument of her counsel’s design did. CENTALINE IN BREACH? 78.Instead of the last argument discussed in the preceding paragraphs, what Lee is really minded to contend is that Centaline became disentitled to its commission because its agents were in breach of their duties owed to her. In this respect, Lee pleaded complete reliance on the professional advice of Centaline and its agents. 79.The existence of reliance does not appear to be disputed. However, a few things should be noted when one comes to consider the ambit of such duty. 80.First, the alleged complete reliance must be objectively and realistically viewed against the facts as found above, including Lee’s background and relevant experience as well as the interactions between her and the agents. 81.Second, Lee specifically refers to the WhatsApp exchange between her and Shea on 3 August 2015 as evidence of such alleged complete reliance. However, such exchange was subsequent to the rights and obligations of two sides of the property deal have already been defined and set out in the Formal Agreement. Importantly, the context of the WhatsApp exchange was the discussion between Lee and Shea of the desirability of the Property in the market situation. That did not constitute a subject of her complaint in defence of the claim in the present action. 82.Third, and in any event, Lee has particularised the breach which she contends should disentitle Centaline from its claim. She is supposed to stick to her pleaded case. However, she did seek to introduce a new allegation of breach of duty on the part of Centaline at the trial. That was the alleged failure of the agents to enquire and to obtain documentary proof of the authority of Tam was represent the companies on the vendor’s side in the deal. 83.The issue was raised for the first time by way of cross examination of Centaline’s witness on such footing which was yet to exist as part of Lee’s pleaded case. Advancing such contention for the first time by way of cross examination was strictly illegitimate. The authority issue was never raised over the 4 years since the last version of the defence has been filed in 2018. Obviously it also exceeds the agreed list of issues between the parties. Had such issue been properly raised before, Centaline would have been entitled to investigate and to consider if further evidence in this respect should and could be adduced. Introducing the new positive allegation only in the middle of the oral evidence of Centaline’s witness also deprived Centaline of fair opportunity of taking instruction and consequential investigation. Any possibility of truncating the trial as a result of that would be what the court must guard against. For reasons, including the above which counsel for Centaline set out, I refused leave to Lee to do so with costs against her. 84.Back to Lee’s actual pleaded case, the alleged breach on the part of Centaline is that of (i) the duty of Centaline’s agents in respect of introduction of Tse of JC to act for her as solicitor in the transaction, who was negligent; and (ii) the duty of Centaline’s agents under the Code and Guide to the Ordinance, particularly clauses 3.1.1, 3.4.1, 3.5.1 of the Code. Introduction of Tse of JC 85.Essentially, Lee contends that Tse was negligent in his professional service in handling and advising on the transaction, but for which she would have terminated the PSPA and refused to enter into the Formal Agreement. This is the subject matter of HCA 2421/2016. However, irrespective of such dispute in that action, Lee, in my judgment, fails to establish the necessary basis for attributing the alleged negligence of Tse/JC to Centaline so as to affect Centaline’s entitlement to commission. 86.First, Lee fails to point out and to substantiate that as a matter of law, Centaline as the estate agent owes a duty to her in respect of the discharge of the professional duties of her solicitors in the transaction. Whilst it was pleaded that Lee expected Centaline to introduce a solicitor to act for her in the transaction, she has no support in terms of law and fact that an estate agent in the ordinary course of his business in Hong Kong is reasonably expected of the assumption of such duty. The estate agent simply had no control whatsoever over the solicitor’s discharge of his professional duty to his client. 87.Second, duty could indeed arise out of conduct amounting to acceptance of request or voluntary assumption. There is dispute between Lee and Centaline as to which of them initiated the introduction of Tse to Lee. However, irrespective of such dispute, the duty that the estate agent could be taken to have assumed would at most be to act reasonably and without negligence in making the introduction in the circumstances of the case. Lee has the burden of both alleging and substantiating how Centaline is said to have been in breach of such duty. No particular of what the agent ought to have done but failed to do before introducing the solicitor to her has been pleaded. 88.Third, apart from failure to plead, Lee also fails to substantiate as a matter of fact that Centaline was in breach of its duty in introducing Tse to her. She does not even begin to establish that the agent introduced Tse without regard to what might reasonably have been expected of him as estate agent to do before making the introduction. The evidence adduced on behalf of Centaline explains how the agent came to know Tse in the field. Introducing Tse to Lee, the agent also relayed to her the fee quotation. The engagement of Tse was eventually a matter of negotiation between Lee and Tse afterwards. 89.I find that the agents were not in breach of their duty in introducing Tse of JC to Lee for acting as her solicitors in the deal. The Code 90.The pleaded case of Lee with reference to clauses 3.3.1, 3.4.1 and 3.5.1 of the Code is that the agents had given inaccurate and incomplete information to her regarding the identity of the vendor of the Property and the nature of the subject sale and purchase prior to the signing of the Agency Agreement and Commission Agreement. As mentioned above, she is not to argue beyond such pleaded case. 91.Clause 3.3.1 of the Code under the topic of “professional knowledge and competence required” provides that estate agents shall provide services with honesty, fidelity and integrity and protect clients from fraud, misrepresentation or unethical practices. However, the complaints of Lee fall short of impeachment against the agents for dishonesty and lack of integrity. There was also no fraud, misrepresentation or unethical practice involved in the transaction which the agents have failed to protect her from. Had there been such allegations, they would have had to be pleaded with sufficient particulars. 92.Clause 3.4.1 of the Code under the topic of “ethical and moral standard during practice and responsibilities” provides that the estate agent should protect the client’s interest and carry out the client’s instructions in accordance with the estate agency contract as well as act in an impartial and just manner. However, the circumstances surrounding Lee’s complaint, as discussed above, do not afford the factual basis for any allegation that Centaline did not act in accordance with the Agency Agreement or her interest. Nor do they afford the factual basis for alleging that the agents have acted below moral and ethical standards. The circumstances also do not suggest any partiality on the part of Centaline against the interest of Lee while acting for both sides of the deal. If anything, the WhatsApp correspondence both prior to and subsequent to the conclusion of the PSPA and the Formal Agreement tends to suggest that the agents were anxious to see that Lee would not fall into the possible situation of default and losing out as a matter between her and the vendor. They went so far as maintaining a neutral stance as to whether Lee had cause for complaint about Tse when rendering their advice for the protection of her position. 93.Clause 3.5.1 of the Code under the topic of “exercising due diligence” is amongst the three clauses relied on which may be relevant. The agent is required to fulfil their duties and exercise due care and diligence. In view of the findings made above, there is equally no factual basis for finding breach of such duty under the Code. 94.There is no provision in the Code or the EAO to deprive a licensed estate agent of commission payable under contract on the ground of non-compliance of the Code. The situation may be different where the facts constituted fundamental breach on the part of the agent that has gone so far as destroying the very substratum of the agency contract: see for instance this court’s judgment in the District Court case of Centaline Property Agency Limited v Yip Yuk Fai DCCJ 5321/2009 (18 August 2011) at §§105-111. There is no such contention or evidential basis. 95.Any alleged breach short of destruction of the substratum of the agency contract may afford the client a cause of claim against the agent for her loss and damage: see Yip Yuk Fai (above) at §105; section 36(4) of the EAO. However, this is not the pleaded case of Lee, and there is in fact no counterclaim for damages. In view of the above findings, she would not have been able to substantiate any such claim on the basis of her pleaded factual allegations in any event. 96.I find that Lee fails to prove the alleged breach of duty under the Code. THE QUANTUM 97.There is and could be no real dispute as to the quantum. The amount of HK$1,575,000 claimed comprises the commission payable by the two sides of the deal which fell through, which becomes the liability of the party in default in the fallen deal. CONCLUSION 98.Various points are taken in submissions, including those in respect of the oral evidence and credibility. All of them considered, including those specifically discussed above, I prefer the evidence adduced on behalf of Centaline to that of Lee in case of conflict, and find that Centaline has on balance proved its entitlement to its claim. ORDER 99.Judgment is entered in favour of Centaline against Lee for the sum of HK$1,575,000 with interest thereon at HSBC prime rate plus 1% from the date of writ to the date of judgment. Interest thereafter runs at the judgment rate until payment. 100.Following the event, Lee shall pay Centaline’s costs of this action, including any costs reserved, to be taxed, if not agreed (for the avoidance of unnecessary argument, with certificate for counsel). The costs order is nisi, but will in the absence of application to vary in 14 days become absolute without further order of the court.
Ms Shannon Leung, instructed by Cheung & Choy, for the plaintiff Mr Jeevan Hingorani, Mr Lawrence Cheung and Mr Micky Yip, instructed by K B Chau & Co, for the defendant | ||||||||||||||
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