A.B.C. News Intercontinental Inc v. Bak Ling Enterprises Ltd

HCA004770/1981

BETWEEN

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Coram: Hon. Power, J.

Date: 5th May, 1983.

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J U D G M E N T

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1. In this matter the plaintiff, A.B.C. News Inter-Continental Inc. sues the defendant, Bak Ling Enterprises Ltd. for $76,000, the amount of a deposit paid by the plaintiff to the defendant which it claims became returnable when a proposed lease was not completed.

2. The defendant is the registered owner of apartment 8B situated at Taipan Court, 47B Stubbs Road (the subject apartment). The plaintiff pleaded that on the 30th April 1981 at the defendant's request, it paid to the defendant the sum of $76,000 as a deposit for the proposed letting of the subject apartment. The plaintiff claims that it was an express condition of the said payment that the amount was to be repaid in full if the plaintiff did not enter into a tenancy agreement in respect of the apartment. The plaintiff claims that no tenancy agreement was, in fact, entered into and that the defendant has refused to return the said $76,000.

3. The defendant pleaded that on or about the 15th April 1981, the plaintiff orally agreed to rent the apartment for a term of 2 years commencing from the 1st May 1981 at a rental of $38,000 per month. The defendant says that the amount of $76,000 was paid as a deposit which was forfeited when the plaintiff failed to execute the tenancy agreement.

4. The defendant contends that it is entitled to relief even if there was no tenancy agreement by pleading, in the alternative, that, as the plaintiff requested the defendant, through its agent Ashby Realty Ltd to.,  prepare a tenancy agreement at the time of paying the deposit and as the plaintiff did not inform its solicitors until the 21st. May that it was not prepared to execute the prepared agreement, the plaintiff, by reason of its request to prepare the agreement and its implied request not to let the premises to any other party, became liable for the solicitors' fees involved in the drawing of the agreement, in the sum of $2,500, and for the loss of one month's rent from the 1st May to the 31st May 1981, in the sum of $38,000.

5. The real issue between the parties was whether a contract had been entered into between the parties, as contended by the defendant, or there had only been negotiations out of which no binding contract had arisen, as contended by the plaintiff.

6. The first witness called by the plaintiff was Mr. Kevin Delaney who said that he was an employee of the plaintiff and that he arrived in Hong Kong on the 31st March 1981. He said that he and his wife commenced looking for flats thereafter and that they contacted a number of agents including Ashby Realty. He said that they were given a list of properties, which included the subject apartment, by Mrs. Sandra Bailey of that firm. He said that they twice examined it and then told Mrs. Bailey that they would like to secure it. He said, referring to Exhibit 1, 2 & 3, to which I will refer in detail later, that his feeling was that at this time this "was a preliminary procedure being carried out while we negotiated terms of lease". Mr. Delaney said that Mrs. Bailey negotiated with the defendant on his behalf. He did say that he regarded her firm as representing both his company and the defendant company. He said that on the 30th April he told his solicitor, Mr. Jenkins, that assuming "we could resolve all other issues, we would take a two years lease - car park, finish and escape clause were outstanding  issues." He said that there was no agreement as at the 30th April as he had not seen the lease and would not commit himself to anything. He agreed that the tenancy, which he said had not been entered into by the 30th April, was to run from the 1st May, but said that that was at the insistence of the landlord and that that was the only way he could get into the apartment. Mr. Delaney said that as far as he was concerned the letters of the 30th April, Exhibits 2 & 3, represented the state of negotiations at that time. Mr. Delaney said that during the course of negotiations up until the 30th April, he had informed Mrs. Bailey that he and his wife wanted something done about the floors of the flat which are in a poor condition and that they wanted an escape clause in the lease in case he was suddenly transferred. He said that it was also important both because of the work of his wife and himself that they have an accessible car park he said that these matters were being raised between himself and the agent in the latter part of April.  He said that the agent told him that the owner was pressing for a holding deposit of two months rent and in consequence of this, he sent a cheque to Mrs. Bailey's office ''as we were serious   about this". He said that Mrs. Bailey made it clear that this money was earnest money to show good faith and would be returned if the agreement did not go through.

7. I am mindful of the fact that what may have been said between Mrs. Bailey and Mr. Delaney is not necessarily what was said by Mrs. Bailey to the defendant. It is, of course, given that Mrs. Bailey was the agent of Mr. Delaney ,the latter conversations which will determine what exactly was the relation-ship between the plaintiff and the defendant.   Mr. Delaney produced Exhibit 1, a receipt from Ashby Realty Ltd. to him for the sum of $76,000, stating that it was received on behalf of Bak Ling Enterprises Ltd." It stated that it was "holding deposit for the above mentioned premises".

8. Exhibit 2 was a letter to Mr. Au on the note paper of Ashby Realty Ltd. It was dated 30th April 1981 and was addressed to Mr. Au Bak Ling, Bak Ling Enterprises Ltd., Yau Yue Building, It stated:-

It was signed "Sandra Bailey, Sales Manager".

9. Exhibit 3 was also a letter of the 30th April 1981 and was also addressed to Mr. Au Bak Ling at the same address. It read:-

"Dear Mr. Au,

Please find enclosed a cheque for HK$76,000 for the holding deposit for the above-mentioned premises.

Please issue A.B.C. News with an official receipt for the above Noting that the holding deposit will be refunded immediately and in full should their intent to lease the above-mentioned premises be unsuccessful."

This also was signed "Sandra Bailey, Sales Manager".

10. Mr. Delaney also produced Exhibit 4, a receipt headed "Bak Ling Enterprises Ltd., Yau Yue Building, Temporary Receipt". This receipt bore the No.00122 and the date 30th April 1981.

It read as follows:-

"Received from A.B.C. News Intercontinental Inc. the sum of Dollars Seventy Six Thousand Only being initial deposit for renting Room No.8B Taipan Court."

The words "Yau Yue Building 127-131 Des Voeux Road, C." appeared on printed receipt form but they had  been  struck out and "8B Taipan Court" inserted in place thereof This was later explained by Miss Judy Chan, who gave evidence for the defendant, when she said that this was not the form of receipt normally used for Taipan Court, but was used on that occasion as the Taipan Court receipts were not available. The receipt went on to say that:-

"at a monthly rental of $38,000 exclusive of rates M/F for a period of two years as from 1st May 1981"

It was signed on behalf of Bak Ling Enterprises Ltd. with an indecipherable signature which Miss Chan said belonged to the shroff of the company. At the bottom of the receipt the words appeared:-

"N.B. This temporary receipt is not transferable and should be surrendered in exchange for a formal Rental Deposit Receipt upon signing the Tenancy Agreement. If the applicant named herein fails to sign the Tenancy Agreement within 10 days, this temporary receipt will become null and void and the initial deposit shall be totally forfeited."

11. Mr. Delaney said that about the 5th or An May, he received a draft lease for 3 years and was "stunned by the document''. He said that this was the first time he knew anything of a lease for more than 2 years and he told both Mrs. Bailey and Mr. Jerkins that this lease was unacceptable to his company. This lease is Exhibit 5, and it states:-

"For the term of three years commencing from the 1st day of May 1981 and expiring on the 30th day of April 1984 it the rent of Hong Kong Dollars Thirty-Eight Thousand Only per calendar month, for the first twenty-four (24) months and for the next twelve (12) months Hong Kong Dollars Seventy-Six Thousand Only per calendar month exclusive of rates and management fees."

It does contain, in paragraph 4(h), a term stating that if the tenant is desirous of determining the tenancy at the end of the first twenty-four months he may do so by giving the landlord not less than one month's calendar notice in writing. Mr. Delaney said that in consequence of his complaints, he was given the telephone number of Mr. Au and that he rang and spoke to him. He said that Mr. Au made light of the issue and said it was just a formality and not to worry about it. He said that his reply was that if it was not important, then it should be removed. He said that Mr. Au then said that he wanted a three year lease  and that they discussed what was reasonable sum and Mr. Au suggested that the rise for the third year should be 50% rather than 100% contained in the lease and that he suggested it should be 30%. He said that this was more or less agreed on. He said that he raised three things with Mr. Au who said that he could do nothing about the flooring but told him that he thought something could be worked out about the escape clause. He said Mr. Au told him that he did not know what could be worked out as to the car park. He said that he made it plain to Mr. Au at this time that the car park was a crucial issue to him. It is to be noted that this conversation took place, according to Mr. Delaney, on about the 8th or 9th May.

12. Mr. Delaney said that Mr. Au did not contact him again and so he tried to ring Mr. Au a day or two later, but was told that he had gone to Taiwan.  He said that it was then about 10 days before he could reach him with regard to the car park issue. He said during this time Mr. Jenkins also tried to resolve that issue with Mr. Au's solicitor but that the information Mr. Jenkins received was that only Mr. Au could resolve it. Mr. Delaney, said that he finally contacted Mr. Au on the 13th or 14th of May when Mr. Au said that the car park should not be a big problem. He said that he gave Mr. Au some lesser choices and that Mr.Au finally said No.8 would be O.K. and that he would inform his solicitor and call him back to confirm. He said that Mr. Au did not in fact, ever call him back or confirm this arrangement. He said that Mr. Jenkins then tried to get confirmation from Mr. Au's solicitor as to No.8 car park but was unable to do so.

13. He said that on about the 16th, a second draft agreement arrived (Exhibit 6). This agreement was in much the same terms as the first one except that the third year was to be at the rate of HK$49,400 per month. This agreement it seems indicated that the car park allocated would be No.9. Mr. Delaney said that he had told Mr. Au that No.9 was not suitable to him and that No.9 was changed by Mr. Jenkins first to No.4, which Mr. Delaney said he had also said was not suitable, and then finally to No.8.

14. Mr. Delaney said that he told Mr. Jenkins that he needed confirmation of the car park before he was willing to sign the lease. He said that he did sign the lease in Mr. Jenkins' presence and that he then called the defendant's solicitors office to confirm that the defendant or his solicitor would be there to meet him and was told by the receptionist that no one would be there and that he was just to come over and sign the lease and leave it. He said that he told her that this was unacceptable as there were things to iron out and that he crossed his name off and rang his own solicitor and said that this was the final straw.

15. Under cross-examination Mr. Delaney said that there was no agreement on 30th April as he had not seen a lease and would not commit himself to anything he had not seen in writing. I note that it was never suggested to Mr. Delaney that any of his evidence was untruthful or incorrect.

16. I note, although in the outcome, nothing turns upon it, that the draft lease first produced (Ex. 5) did not reproduce the terms which the defendant contends had been firmly agreed i.e. a lease for 2 years at a rent of $38,000. It appears to have been regarded by Mr. Au as a matter of some importance that the lease be for 3 years as he refused to compromise on the term. There was then further negotiation which resulted in the production of Ex. 6.

17. The next witness called was Mrs. Sandra Bailey. She said that she had been employed by Ashby Realty since June 1980 and that she was the sales manager in April 1981. She said that she showed Mr. and Mrs. Delaney several flats including the subject apartment. She said that they liked the subject apartment although it needed several things doing and that they also asked about car parking. She said that she contacted Mr. Au to tell him that she had a client interested and he told her if they wanted the apartment they would have to be very quick. She said that this was in late April. She said that she told Mr. Au that she had asked Mr. Delaney for two months deposit "which showed good faith on their part" and that she would send the cheque to Mr. Delaney's solicitor and would send the photo copy to Mr. Au with a letter of intent. She said that Mr. Au became angry when she said this and insisted that he should keep the deposit. She said that she told him that this was not at all usual. The deposit was usually held either by the agent or by the solicitor. She said that he told her that unless he had the money by 12 on the following day, he would give the flat to someone else. Mrs. Bailey went on to say that she gave the deposit to Mr. Au on the following day. It seems clear, therefore, that this conversation must have taken place on the 29th Apri1. She said that after this conversation she contacted Mr. Delaney and on the following morning a messenger collected the cheque from the plaintiff's office. She said that the cheque was sent to the defendant together with Exhibit 2 and Exhibit 3. She said that she received Exhibit 4 from the messenger when she returned from Mr. Au's office and that she then took legal advice with regard thereto and was told that it was completely illegal.

18. Returning later in her evidence to the conversation with Mr. Au, she said, "I definitely discussed the refund situation with Au before I wrote Exhibit 3; and Exhibit 2 was subject to contract as landlord is just as likely to pull out as client".

19. It seems quite clear then, from her evidence in chief, that she was saying that the material conversation took place with Mr. Au on the 29th and that this had been confirmed by the sending of the cheque together with the covering letters on the 30th. The defendant, of course, was contending in its pleading that a tenancy agreement had been entered into on or about the 15th April.

20. Mrs. Bailey was quick to admit under cross-examination that she was the agent of Mr. Delaney and that she had never been appointed by Mr. Au to be his agent.  she said that it was possible that Mr. Au had told her to contact July Chan who she believed was Mr. Au's secretary. She said that the flats were not in great demand in April/May of 1981 as they had been empty for a long time, several weeks or months. She said that the rents on these flats were high and that they had no facilities which was why they had been empty. She said that she had tried to do all the negotiations with Mr. Au but, because  he was exceptionally rude and sometimes slammed down the telephone, she then  tried to go through Judy Chan but that, nonetheless, Mr. Au made all decisions.

21. I intend to set out in detail the further cross-examination of this witness as this evidence was, in the out-come, heavily relied upon by Mr. Chain, for the defendant, who contended that it established that a completed agreement was reached by the parties at the end of April but prior to the negotiations regarding the deposit.

22. In the outcome Mr. Chain did not urge the Court to accept that the agreement was entered into "on or about 15th April, 1981", as was pleaded, or that a firm reques "to hold the flat" was communicated by the witness to Miss Judy Chan on the 20th April as was suggested to Mrs. Bailey in cross-examination.

23. It is to be noted that what was put to Mrs. Bailey was that on 20th April she had requested Miss Chan to hold the flat. The evidence of Miss Chan, that in "mid April, some time after Good Friday Mrs. Bailey asked her "to hold the premises" and told her "that her (Mrs. Bailey's) client is going to take Taipan Court firmly", was never put to Mrs. Bailey.

It was then put to the witness that Miss Chan would say that she could remember such a request being made on the 20th April.

24. The cross-examination then returned to the question of the terms of the lease.

25. It was suggested by Mr. Chain that this evidence established that in a conversation, which took place prior to the one in which the deposit was discussed, the witness agreed to accept the basic terms of the lease.  Mr. Chain suggested that the evidence given in cross-examination established this earlier conversation and that it was an unconditional acceptance by the defendant of the terms proposed by the plaintiff.

26. I turn now to the evidence of Miss Judy Chan. Miss Chan, who was the only witness called for the defence, said that she was the personal assistant to Mr. Au and that at the beginning of April 1981, Mr. Au told her Ashby Realty Ltd. wanted to rent the subject apartment.  she said that she was able to give "the gist" of her conversations with Mrs. Bailey who contacted her and said that she had a client who wanted to take the subject apartment if it was available. She said that she told her that it was available and that the rent would be $38,000 a month and said, "If your client wants to take over these premises, please give us the deposit first." and that "Mrs. Bailey later called her and asked her to hold the premises for her and then told her that her client was going to take Taipan Court firmly and so I asked her to give me the deposit."

27. Miss Chan said that this took place in mid April, some time after Good Friday. Good Friday in 1981 was on the 17th April she said that she told Mrs. Bailey that the rent would be started on the 1st May and that Ms. Bailey agreed "to give" and that she said "2 years" and that Mrs. Bailey did not say anything in response to that. It is to be noted that in this evidence she says that she suggested a term of 2 years to Mrs. Bailey who made no response.

28. The witness said that she repeatedly telephoned Mrs. Bailey asking her for the deposit but that Mrs. Bailey did not send the deposit and so she gave her a dead line, noon on the 30th April. The witness said that she told Mrs. Bailey that as there were several parties interested "so you have to give me the money first to confirm this, so I gave her the dead line, 30th April noon she only told me that the cheque is coming and asked us to wait till 5 p.m. Cheque was received by us at 5 p.m. on 30th April."

29. Miss Chan said that there had been a request about the car park from Mrs. Bailey and that she told her that each tenant was allocated one free car park. She went on to say that she knew there was discussion about the car park because of something her boss had told her. She said that in the 2nd or 3rd week of May, she heard the deal had fallen through and that she then telephoned I.B.M. and asked them if they wanted to rent the flat and that when they indicated they did and an agreement was drawn starting on the 1st June.

30. She said that her firm had to pay $2,500 to P.C. Woo for drawing up the lease. It seems from the evidence that two leases were drawn up but she did not specify for which the fee was charged.

31. Under cross-examination, she said an agreement was reached with the plaintiff in mid April. As I have already indicated, in the outcome, Mr. Chan did not rely upon any agreement having been reached with the plaintiff in mid April but relied upon an agreement which it was submitted was reached towards the end of April prior to the discussions about the deposit.

32. Under cross-examination the witness agreed that both she and Mr. Au were doing the negotiating on behalf of the defendant. The witness agreed that Exhibit 2 came with the cheque but said that Exhibit 3 was not sent to the defendant for some days. Mrs. Bailey was never cross-examined to this effect and I now make it clear that I have no hesitation in accepting her evidence that both Exhibit 2 and Exhibit 3 accompanied the cheque. I am satisfied that Miss Chan was not truthful in this regard and was deliberately trying to suppress the fact that Exhibit 3 accompanied the cheque no doubt because she felt that, if she admitted that both exhibits accompanied  the cheque, it would be against the interests of the defendant.

33. The witness reiterated in cross-examination that Mrs. Bailey had told her that her client would definitely take Taipan Court 8B. She was asked by the Bench whether it might be that Mrs. Bailey had said that her client definitely "wanted" 8B and she agreed that that might have been so.

34. The witness was further cross-examined about the alleged confirmation:-

35. At this stage of her evidence the witness had twice, once in examination in chief and once in cross-examination, indicated that, prior to the end of April; there had been no agreement as to the term of the lease. In re-examination she was asked was anything said as to the duration of the lease and she said, "Yes, she mentioned for a period of two years". She was not, however, asked nor did she say, when the period of two years was first mentioned.

36. This witness, Miss Chan, was not a witness of truth. I am satisfied that she told a deliberate lie as to Exhibit 3. I am not prepared to accept her evidence that in about mid-April the plaintiff had indicated, through its agent, its firm agreement to take the premises for a period of 2 years at the rental stated. Indeed, as I have already said, in the outcome, Mr. Chain did not rely upon any such agreement but contended that the agreement to take the premises was established by the evidence of Mrs. Bailey contending that it showed that there had been an agreement so to do just prior to the conversation as to payment of the deposit. I have read all of the evidence of this witness with care and I am satisfied that it  does not establish that there was any conversation such as is contended for by Mr. Chain. I am satisfied that she was, at all times, saying that when she told Mr. Au that the clients wanted the flat, she also told him that she would ask them for a two months deposit to show their "good faith". I accept that she definitely discussed "the refund situation" with Mr. Au before she wrote Exhibit-3. 1 am satisfied that Exhibit 3 sets out the position accepted by the parties at the end of April. Indeed Mr. Au was never called to give evidence and no suggestion therefore has ever come from him that this was not so. I am satisfied that the defendants failed in their defence that there was an agreement to take the premises concluded between the parties prior to the end of April. Let it be thought that I have over-looked it, I hold that the statement in Exhibit 4 that the "initial deposit should be totally forfeited" was in the circumstances without legal effect and unenforceable.

37. I turn now to the alternative defence which was that the plaintiff by its action had placed itself in the position where it was liable both for the legal costs incurred by the defendant in having a draft lease prepared and for the one months rental which the defendant lost, through having no occupant in the premises during the month of May. In this regard the defendant relies, firstly, upon the statement in Exhibit 5, "Please have the draft tenancy agreement drawn up". The defendant says that this was a request to draw up the agreement and that the defendant must be liable for any costs consequent upon the defendant fulfilling that request. The defendant says that the plaintiff's failure to enter into the agreement, given that the defendant was prepared to do so, gives rise to a liability on the part of the plaintiff to pay the lost month's rent.

38. The defendant further argues that even if no request from the plaintiff to prepare the lease can be spelt out, the plaintiff agreed, by necessary implication, to say both rent lost, by reason of the fact that the defendant was reserving the flat for him, and legal fees.

39. Mr. Chain suggests that there was no express agreement between the parties to cover the situation which arose when the negotiations went off and asks the Court to deal with the matter upon the basis of the decision in Brewer Street Investments Ltd. v. Barclays Woollen Co. Ltd.⁽¹⁾ It is correct to say that there was no express agreement? Surely Exhibit 2 and Exhibit 3 which I am satisfied governed the relationship between the parties set out what would occur if the negotiations failed. Exhibit 3 states that "the holding deposit will be refunded immediately and in full should their intent to lease the above mentioned premises be unsuccessful".

40. Even if one was required to ask the question set out in the Brewer Street Investments Ltd. case. The answer would give no comfort to the defendant.

41. In that case a prospective tenant requested that certain work be done on the premises and agreed to pay for the cost of that work. In the event, the lease was never entered into and the work was only partially completed. There was no agreement between the parties as to who would pay for the cost of such partially completed work. The Court found that the negotiations had broken down through the fault of the prospective tenant and held that he was liable to pay the owner the cost of the partially completed work which, up to then, had been borne by the owner.

42. Lord Denning said at 1334:-

"In these circumstances, the proper way to formulate the claim is, in my view, on a request implied in law, or, as I would prefer to put it in these days on a claim in restitution.

On the facts which I have stated, it is clear that the parties proceeded on a fundamental assumption - that the lease would be granted which has proved to be wrong. The work done has been wasted and on whom is the loss to fall. The parties themselves did not envisage the situation which has emerged and did not provide for it, and we do not know what they would have provided had they envisaged it. Only the law can resolve their rights and liabilities in the new situation, either by means of implying terms, or, more simply, by asking on whom the risk should fall."

43. His Lordship went on to say that the question to ask in such circumstances is. What was the reason that the negotiations broke down? That then is the question which must be asked and Romer L.J., at 1336, indicated that one must take into account the whole of the circumstances when seeking the answer.

44. In the present case the negotiations eventually went off because Mr. Delaney was unable to get any satisfaction as to a matter which to him was vital, i.e. whether or not he would be allowed suitable car park. After the final negotiation in this regard,  on the 13th or 14th of May, Mr. Au undertook, to confirm with him that he would be allowed suitable car park. Mr. Au failed to honour this undertaking. It had still not been confirmed when Mr. Delaney received  the second draft lease on 16th May. Not only was Mr. Delaney unable to locate anyone who could confirm but he was also told that he was expected to sign forthwith. I do not accept that the negotiations broke down because of the fault of the plaintiff. It was the cavalier approach of the defendant, which caused the negotiations to falter and, finally, cease. The intention of the parties as expressed in Exhibit 3 was clear - if no lease came into being then the deposit was to be returned immediately and in full" I do not see how it can be argued, even if one ignores the existence of Exhibit 2 and Exhibit 3, that the plaintiff in such circumstances should be liable to the defendant for loss he sustained by reason of the negotiations going off. If the defendant had acted reasonably and expeditiously, the negotiations would have been completed and I see no reason to suppose that the lease would not have been executed. I would be satisfied, even if Exhibit 2 and Exhibit 3 did not exist, that the defendant has no right to recover an amount representing the rent lost. It might be suggested that the same considerations do not apply as regards the costs of the preparation of the draft tenancy agreement. It is true that it was requested by the plaintiff that such an agreement be drawn up. This was, however, done in circumstances where the plaintiff was prepared subject to finalizing of the negotiations, to enter into such an agreement. That the negotiations were never finalize was, as I have indicated, not the fault of the plaintiff. In such circumstances, if it was so that there no express agreement as to who should pay such costs, I am satisfied that they would have to be borne by the party who caused the negotiations to go off, namely the defendant.

45. I am satisfied that there was an express agreement which came into effect when the negotiations went off but that even if this had not been so the defendant would not be entitled to succeed on his claim for rent and cost of preparation of the lease. There will be judgment for the plaintiff in the amount claimed. There will be an order nisi that defendant pay the plaintiff's costs to be taxed.

Representation:

Mr. Mackay (Jenkins, Oliver & Au) for Plaintiff.

Mr. B. Chian (P.C. Woo & Co.) for Defendant.

(1)    (1953) 2 ALL E.R. 1330