Neweast Development Ltd v. Sf International Secretaries Ltd and Others

DCCJ 5539/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5539 OF 2003

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BETWEEN

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Coram : Deputy Judge W. Lam in Court

Date of Hearing: 22nd Septemebr 2005

Date of Handing Down Judgment : 26th September 2005

JUDGMENT

Background

1.The Plaintiff (“P”) claims damages from the 1st Defendant’s (“D1”) for breach of a tenancy agreement, and from D2 for the value on its dishonoured cheque issued on behalf of D1.  On 22nd July 2003, as a result of D1’s interest, P offered to lease office premises, stating terms in a letter: see Bundle C page 10 (“C10”).  On Saturday the 26th July shortly after midday, by D1’s “counteroffer” marked “Please refer to tenant’s clarification” on and using P’s original letter, D1 wanted to vary Items 10, 11, 17, 18 and 25.  A 3-way telephone discussion over these variations was held among D1’s Mr WONG, D1’s agent Mr KAN and P’s agent Mr YUNG, as a result of which D1 agreed not to vary Items 11 and 17, while P agreed to vary the other three Items.  D1’s agent tendered to P’s agent Mr YUNG a cheque whose drawer was D2 (whose partner was also Mr WONG, a director of D1).  The cheque was for $18,722 being deposit for the first month’s rent.  But later that afternoon at about 4pm, D1 engaged a “Feng Shui Master” to examine the premises and obtained adverse advice.  D1 decided to withdraw from the agreement, but notice was not given to P until early the following week.  On Monday morning the 28th July P presented the deposit cheque for payment, but D2 had stopped payment of the same, hence it was dishonoured. On Tuesday morning (29th July) D1’s agent informed P by fax that D1 was withdrawing from the agreement: C33.  The tenancy not being taken up, P was unable to secure another tenant until April 2004 despite repeatedly advertising in the meantime: see C35 to C42.

The evidence

2.Mr YUNG (PW1), the agent for P, testified.  He adopted his witness statement at B1.  The essence was as stated above, the crucial part being that following the telephone conference, D1 had accepted P’s offer.  In other words, by the time D1’s agent handed over the cheque, all the terms had been agreed to by both parties.

3.Mr WONG (DW1) for D1 and D2 testified, adopting his witness statement at B9.  There was no dispute regarding the primary facts, with DW1 agreeing with Plaintiff’s Counsel that both sides had left nothing unsettled, and that withdrawal was tendered after complete agreement had been reached.  In his final address to the Court DW1 admitted repudiation by D1.  But DW1 says that despite all the above, and despite tendering the deposit cheque to P, which he himself had authorised his agent Mr KAN to do, there was no binding agreement until the parties had signed the Formal Tenancy Agreement yet to be drawn up: C14(d) paragraph 27 and C16.  He said he tried his best to notify P as soon as possible after he had decided to withdraw from the agreement, and could not understand why a withdrawal tendered only a few hours after agreement, or at most one or two days afterwards, could have landed D1 with such a large amount of damages.

4.I find both witnesses to be honest.  There was nothing in the testimony of either witness which contradicted that of the other, and their oral testimonies were consistent with the materials in the bundle of documents. 

P’s offer and D1’s “counteroffer”

5.P’s original offer had expired by 5:00pm on the 24th July 2003 because D1 had not accepted, or even responded, before the deadline.  Strictly speaking, therefore, what D1 refers to as its “counteroffer” was in reality a new offer made by D1 to P, albeit D1 had used P’s original letter of offer adopting the terms inside (subject to D1’s proposed variations in the five items mentioned under the introductory paragraph of this judgment entitled “Background”). 

6.D1’s “counteroffer” was made to P at about noon on the 26th July 2003.  Following a 3-way telephone conference among Mr YUNG for P, Mr WONG for D1, and D1’s agent Mr KAN, the undisputed facts are that:

(1)	D1 agreed to delete its proposed variations regarding Items 11 and 17, while P agreed to vary Items 10, 18 and 25 as proposed by D1. Otherwise the terms were the same as what appeared in P’s original letter of offer. Actually Item 25 was more a clarification of and not a variation to P’s original Item 25, but nothing turns on this aspect. On page C15 we can see that D1’s proposed variation in Items 11 and 17 were crossed out. Although it was P’s agent Mr YUNG who had physically deleted them with ink, the undisputed evidence is that this was done after D1 had agreed to their deletions, and as witnessed by D1’s other agent Ms LEUNG. Even though D1 did not so assert, I have considered, but I do not accept, any possibility that Mr YUNG had unilaterally deleted D1’s two proposals, because Mr YUNG acted for P, not for D1, and so if Mr YUNG (or P) had wanted to do anything unilaterally, he would have deleted all of D1’s five proposed variations, not just two of them.
(2)	P agreed to the variations in Items 10, 18 and 25, as a consequence of which P now accepted D1’s counteroffer, and,
(3)	As a result of agreement by both sides, D1 immediately handed to P its deposit cheque, representing the value of one month’s rent.

7.D1 argues that there was no binding agreement in the afternoon of 26th July 2003 because it was “subject to a Formal Tenancy Agreement” which was to be drawn up and signed by the 14th October 2003.  However, even on DW1’s own evidence the agreement on the 26th had left no matter unsettled.  There was no further negotiation to be made on any of the terms as shown in “P’s offer” or as varied by D1 under Items 10, 18 and 25, because everything was agreed shortly after midday on the 26th July 2003: more about this in the next paragraph.  Even on D1’s case, intention on offer and acceptance was not in any doubt.  The Formal Tenancy Agreement, yet to be drawn up, was only worded for P’s protection in case D1 decided not to sign the same by the 14th October 2003: see Item 27 at Bundle C14(d).  The agreement arrived at shortly after midday on the 26th July was not “subject to contract”: see Chitty on Contracts 29th edition (2004) at paragraphs 2-110 to 2-112, and 2-116.  I find that the Formal Tenancy Agreement in our case today came precisely under “the second possibility” referred to in Chitty on Contracts (supra) at paragraph 2-114.  Put in another way, what happened as a result of the 3-way telephone conference, as evidenced by Bundle C14 to C16 (and the testimonies of PW1 and DW1 in court), gave rise to an immediately binding contract even though, in due course, if D1 had proceeded to sign a Formal Tenancy Agreement, the latter document would supercede this immediately binding contract (but not vary any of the latter’s terms). 

Furthermore, there were other pointers to D1 having unmistakably agreed on tenancy: (1) the language in the offer at C14(b) at Item 12, (2) D1’s own letter at C33 used the words “we withdraw from our acceptance of Landlord’s offer”, (3) D1’s own language in the last paragraph at C16 also points to previous acceptance, (4) more importantly, DW1 in the witness box agreed that when he signed on C14(d) D1’s intention was to accept P’s offer, that “Yes, we wanted to lease on those terms”, and further, that when he wrote the repudiation letter at C33 he meant just what was written, i.e. D1 had accepted but now wished to withdraw from the agreement.

For the abovestated reasons I do not accept that D1’s “counteroffer”, having passed the 3-way telephone negotiation and agreement stages, was subject to any more conditions precedent. 

D1’s subsequent acts

8.D1 says it was entitled to withdraw its “counteroffer”, reasons being the result of faulty fire escapes, adverse Feng Shui advice, and unexpected expenses in refurbishing the premises.  For the reasons stated above I find D1’s withdrawal had come too late. 

9.In addition to being too late to be permitted by law, D1’s reasons for repudiation were in any event devoid of merit, as I will now explain.

10.D1 gave reasons for repudiation in its Amended Defence at paragraphs 26(a) (b) and (c). 

Regarding fire escapes, the undisputed evidence from PW1 Mr YUNG is that tenants and visitors would have no difficulty evacuating the premises in case of fire, because the wire gate had a side door which was not locked, so that anybody could exit by merely pushing the latch to the side: see photographs at pages C54 to C55.  For people wishing to enter into the premises, for obvious reasons the latch would not be accessible, but there was nevertheless no problem for them, because there was a guard on duty 24 hours a day, and anyone wishing to enter only needed to register with him.  PW1 had never heard about the fatal incident alleged by D1 to have occurred in 1977.  I note that in any event it was a very long time ago, in addition to it being only hearsay, and I have seen nothing, not even hearsay documents, to support this allegation.  DW1 said that when he inspected the premises on the 21st July 2003 there was no wire gate, and so D1 did not know of its existence until after he had agreed to lease.  However there is no suggestion of fraud or deceit, let alone any material particular, to enable the agreement to be vitiated.  Furthermore PW1’s evidence about the gate was undisputed.  Accordingly I find this “ground for repudiation” advanced by D1 to be devoid of merit.

Regarding the Feng Shui advice, this had come after the parties had agreed to the terms of tenancy, so that the advice, even if it had any substance at law, had come too late.

Regarding costs of repair maintenance and refurbishing, D1 blamed P for failure to disclose “this major factor”.  However the unchallenged evidence from PW1 is that P would rent the premises as a “bareshell”: C14(c) at paragraph 22.  D1 “not being able to afford it” is not relevant to the issue of liability.  Furthermore, Mr WONG (DW1) had inspected the premises well before the 26th July, and so D1 cannot now complain that it did not know what the premises was like before agreeing to lease the same.

For the above reasons I find that none of D1’s defences in paragraph 26 enabled it to escape liability.  DW1 has almost said it in as many words, although I make no finding of fact in this regard, i.e. that the real reason for D1’s decision not to proceed with tenancy was because DW1’s wife, also a partner of D1 and D2, decided to repudiate and/or make DW1 repudiate because of the adverse Feng Shui advice she had received.  However, for reasons as stated above, I find this had come too late. 

11.On the evidence, therefore, I find that D1 had unilaterally repudiated and breached the contract, and hence liable to P including its foreseeable consequential losses.

P’s mitigation

12.DW1 says he had, on behalf of D1, endeavoured to notify P of its withdrawal as soon as possible in order that P could look for another tenant without wasting time and opportunity.  While I agree this to be an act of kindness, at law this was unable to remove D1 from liability for breach.  D1 says the short few hours between agreement and its withdrawal could not enable P to make such a large claim.  But this is not a defence at law.  That D had communicated its repudiation as soon as possible would of course help P to mitigate its loss so that D1 would be liable for as little of P’s loss as possible, but this is the only extent to which the act could assist in D1’s case.

13.I find P’s conduct in mitigating its losses to be reasonable.  As soon as P knew D1 was in breach and so would not be signing the Formal Tenancy Agreement by the 14th October 2003, P has repeatedly advertised for a substitute tenant.  From the 30th October 2003 to the 2nd April 2004, P has advertised via the South China Morning Post on no fewer than 12 occasions, but was unable to secure a tenant until the 15th April 2004. 

As to P’s payment of stamp duty on the agreement at C14, P says this document was stamped “in order to make it a valid instrument so that it could be tendered as evidence”.  I do not find D1 or D2 liable to P in damages for this expense, because P well knew that the agreement was not to be honoured by D1, and so P would never use it against D1 per tenancy, but would only use it per litigation.  That was why stamping was not done until September 2005.  I find D1 liable for the cost of stamp duty under the heading of “Costs” but not under “Damages”.  In any event the Schedule as appears in B6 to B7 does not include stamp duty.  I accept the Schedule, and I award damages to P as stated in that Schedule.

P’s case as against D2

14.The defendants say D2 should be severed from these proceedings because the claim against D2 fell within the jurisdiction of the Small Claims Tribunal.  If P had chosen to sue D2 separately, I agree that this may be the case, as it was highly unlikely that interest accrued under a capital sum of $18,722 could exceed $50,000 in 2 years from 2003 to 2005.  However P has sued D2 and D1 together, because the nexus was inextricable, and I find this course to have been entirely proper.  I find nothing of merit in the defendants’ contention over jurisdiction. 

Because of the provisions in the Bills of Exchange Ordinance Cap.19 s.27, I find P was entitled to sue D2 on the dishonoured cheque because, it is not disputed, D2  D1 DW1 himself and his wife and son were in reality all in and operating from the one and the same family business.  If D1 had secured new premises, D2 would also have new premises to operate from, so that D2 would benefit from the new tenancy.  In other words, consideration for D2’s deposit cheque not only moved from P but also to D2.  But it was D2 which has stopped payment of the cheque: see Bundle pages C17 and C34.  Bundle C14(d) at Item 27 provides for forfeiture of deposit if D1 would not sign the Formal Tenancy Agreement.  The terms inside C14 being agreed to and so enforceable, I find D2 liable to P for the amount on the cheque i.e. $ 18,722.

Conclusion

15.There will be damages awarded to the Plaintiff against D1 in the sum of $ 128,099.73, and against D2 in the sum of $ 18,722, together with interest at 5% per annum from the date of the Writ to the date of judgment, and at 8% from the date of judgment to the date of payment. 

16.Costs nisi to the Plaintiff against D1 and D2, to be taxed if not agreed, with certificate for counsel. 

Mr. Paul LEUNG H.M. instructed by Messrs. Ford, Kwan & Co. for Plaintiff.

D1 and D2 represented by Mr. WONG Samuel Sze-hang, in person.