Wealthy Gate Architects & Associates Ltd v. The Syw Trustee Holdings Corporation
Read the full judgment text of HCA 3541/2002 on BabelCite. This High Court CFI judgment was delivered on 31 March 2006.
1. The plaintiff is a chartered architect, and the defendant is the owner of a piece of land, (“the Land”) with a four-apartment block on it, lying just above the St. Stephen’s Beach at 22 Wong Ma Kok Road, Stanley. In January 1997, the defendant instructed the plaintiff to apply to the Lands Department for a lease modification to permit gross floor area (“GFA”) calculation to cover the whole of the Land. The agreement between them provided for payment of a retainer fee and a bonus fee. The p
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HCA 3541/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 3541 OF 2002 ____________ BETWEEN
____________ Before: Deputy High Court Judge Muttrie in Court Dates of Hearing: 1, 2, 3 and 7 March 2006 Date of Judgment: 31 March 2006 _______________ J U D G M E N T _______________ 1.The plaintiff is a chartered architect, and the defendant is the owner of a piece of land, (“the Land”) with a four-apartment block on it, lying just above the St. Stephen’s Beach at 22 Wong Ma Kok Road, Stanley. In January 1997, the defendant instructed the plaintiff to apply to the Lands Department for a lease modification to permit gross floor area (“GFA”) calculation to cover the whole of the Land. The agreement between them provided for payment of a retainer fee and a bonus fee. The plaintiff’s claim is for the latter, which amounts to $1,004,221.00; but the defendant, though it has paid the retainer fee, disputes the plaintiff’s entitlement to the bonus. Background 2.Dealings between the parties, in the persons of the plaintiff’s director, Mr Lau Kam Sing, Dickie, and the defendant’s director, Mr Wong Ting Him began in January 1997. Mr Lau is an architect, and Mr Wong a qualified but currently non-practising solicitor, whose business is to look after the defendant, which is a real estate business founded by his father. 3.On 22 January 1997, the plaintiff wrote a letter to the defendant, which Mr Wong countersigned as agreed and accepted on the defendant’s behalf. The letter set out “the terms and conditions for our consultancy service” as follows :
4.It is, however, the defendant’s pleaded case that the agreement was made partly in writing and partly orally, in that Mr Lau and Mr Wong agreed on 22 January 1997, at the defendant’s office, that the bonus fee would only be payable if and when the terms and conditions offered by the Lands Department were accepted by the defendant. Alternatively, this oral agreement amounted to a collateral agreement, entered into in consideration of the defendant entering into the written agreement and/or singing the letter. 5.In any event, the defendant paid the first instalment of the retainer fee, and the work of applying for a lease modification commenced. In fact, it was sub-contracted to one PlanArch Consultants Ltd (“PlanArch”). On 22 January 1997, the plaintiff entered into written agreement with PlanArch; in fact, it appears that the PlanArch agreement came first and Mr Lau copied most of its terms into the plaintiff’s letter to the defendant. The only difference was in the amount of the fees; the total retainer to PlanArch was $30,000 and the bonus was to be calculated at $50, instead of $100, per square foot, on the excess of the approved GFA over the existing GFA. 6.Ms Betty Ho Siu Fong, PlanArch’s director, reviewed the situation and discovered that part of the Land at the south-eastern end fell within a Green Belt zone. It was accordingly necessary to apply for approval of development under section 16 of the Town Planning Ordinance. The parties agreed to this course of action, and on 5 February 1997 the plaintiff and the defendant entered into another written agreement, by a similar countersigned letter, for the plaintiff to undertake the planning application. The retainer fee was $50,000. Again, the job was sub-contracted to PlanArch, by a letter from the plaintiff dated 19 February 1997, and countersigned by Ms Ho for Planarch. Planarch’s retainer fee was $30,000. 7.It became apparent to Ms Ho, from her discussions with the Planning Department and the minutes of a planning committee, that permission to use the Green Belt portion of the Land for development was unlikely to be granted. It was therefore decided to apply for a land exchange. This would involve a surrender and re-grant of the Land, the re-grant to include about 300 square metres of Government land at the north-western end, which could be used for development, and which could be included for the purposes of GFA calculation. This matter was discussed at a meeting between Mr Lau, Ms Ho, Mr Wong and his secretary Ms Lee, and there is no dispute that the parties agreed on this course of action. 8.Accordingly, on 9 July 1997, PlanArch submitted to the District Lands Office, Hong Kong South (“the DLO”) an application for the land exchange. At the same time the planning application was withdrawn. In response to the land exchange application, on 9 April 1998 the DLO issued to the plaintiff, through PlanArch, a without prejudice offer (“the WP Offer”) of a land exchange, i.e. the surrender of 2,247 square metres, and the re-grant of 2,360 square metres (about), subject to the payment of administrative fee and premium to be assessed, and a number of basic terms, one of which was that there would be a maximum GFA of 1,470 square metres. 9.At this point the plaintiff considered that it was entitled to its bonus, and accordingly on 7 May 1998 invoiced the defendant for $1,006,373, calculated on an excess of 10,063.73 square feet of the new GFA over the old GFA, charged at $100 per square foot. However, the next day, 8 May 1998, the defendant wrote to the plaintiff terminating the retainer with immediate effect. No reason was given. The defendant paid the plaintiff the balance of the retainer fee, i.e. $34,000, by cheque dated 15 June 1998. 10.The application remained alive and Ms Ho continued to deal with it. She drafted a letter to the DLO, stating the defendant’s acceptance of the basic terms with some minor modifications; Mr Wong agreed the draft and the letter was sent out on 22 April 1998. The DLO, having further considered the application, on 22 September 1998 issued a formal offer of land exchange, with a slightly different figure for the area to be granted, and a maximum GFA of 1,468 square metres. In fact the plaintiff’s claim for bonus fee is calculated on this latter figure. The offer was subject to payment of premium of $38,470,000, and administrative fee of $140,000. The offer was open for acceptance until 21 October 1998, which was the final date for settlement of the administration fee. 11.The premium was not acceptable to the defendant. Ms Ho introduced Mr Wong to a firm of surveyors, Chinaman Surveyors & Consultants, who offered to negotiate the premium on the defendant’s behalf, but this was not taken up. Ultimately, the DLO on 27 October 1998 withdrew the offer, because the defendant had not confirmed its acceptance or settled the administration fee by 21 October 1998. 12.Thereafter, the plaintiff did not pursue its claim with any urgency. It appears that the plaintiff’s staff followed up the invoice and some reminders were sent. On 28 March 2001, the defendant wrote to the plaintiff drawing its attention to “the mutual agreement made before the signing of our agreement on 22 January 1997 … that a bonus fee will only be payable to you subjected my acceptance of the terms and conditions imposed by the Lands Department Hong Kong South on the proposed Land Exchange”. The plaintiff then instructed solicitors who sent a letter before action on 26 April 2001 and the Writ was issued on 16 September 2002. The plaintiff’s claim 13.The plaintiff pleads that the agreement between the parties was evident its letter dated 22 January 1997, and sets out the terms thereof. It says that in pursuance of the agreement, it applied to the Lands Department through its agent, PlanArch, and that by the Land’s Department’s letter of 22 September 1998 a lease modification was proposed to be granted to the defendant whereby the permissible GFA, which was 534.71 square metres, would be increased to 1,468 square metres. By the terms pleaded, or by reason of matters pleaded by way of reply, namely that the defendant was advised to apply for a land exchange in order achieve the desired lease modification, and accepted that advice, the defendant is liable to pay the bonus fee of $1,004,221.00. The defendant has failed to do so in breach of the terms of the agreement. The defendant’s case 14.As I have indicated above, the defendant’s case is that the agreement was partly oral, the oral part being made between Mr Lau and Mr Wong at the defendant’s office on 22 January 1997, or there was an oral collateral agreement, or there was an implied term, that :
15.The defendant pleads that without its knowledge, the plaintiff applied for a land exchange which involved the surrender of the Land and the grant of a new lot. On 7 May 1998, the plaintiff invoiced the defendant for $1,006,373.00, on the purported basis that there was a successful lease modification resulting in an increase of GFA to 1,470 square metres. The invoice was issued in breach of the agreement, because there was no lease modification, but rather a land exchange; or because the Lands Department had not approved the application; or because the Lands Department had not informed the defendant of any terms or conditions of lease modification which were capable of being accepted by the defendant. The plaintiff was not entitled to issue this invoice, and Mr Wong told Mr Lau as much, terminated his retainer, and paid the retainer fee. The Lands Department on 22 September 1998 issued the formal offer letter but its terms were not accepted by the defendant. Accordingly the defendant is not liable for the bonus fee. Issues 16.The first and main issue is whether, at their meeting on 22 January 1997, Mr Lau and Mr Wong made an oral agreement that the bonus would only be payable if and when the defendant accepted the terms and conditions offered by the Lands Department. If there was such an agreement it would probably have to be regarded as a collateral agreement because the letter of engagement is apparently complete in itself. 17.The alternative pleading of an implied term seems to have been abandoned, as it should be, because either there was an oral agreement or there was not. If there was no oral agreement, it would not be necessary to imply the terms it is said to have contained, because the contract would operate equally well without any implied terms. Further, the implied terms contended for would be neither necessary nor obvious. 18.It is pleaded that the plaintiff, without the defendant’s knowledge, applied for a land exchange instead of a lease modification, but this too seems to have been abandoned. It is not now denied that Ms Ho told Mr Wong that an application should be made for a land exchange, and that Mr Wong agreed to it. In fact Mr Wong said under cross-examination that despite the fact that the letter of engagement referred to a lease modification, he would have been quite happy to pay the bonus for a land exchange, provided always that the terms and conditions had been acceptable, because he knew of and agreed to the land exchange application. 19.The other major issue relates to the construction of the agreement contained in the letter of 22 January 1997, if there was no oral agreement. What does “approval” mean? Did the DLO’s WP offer amount to the “approval by the Lands Department” on which the plaintiff would be entitled to the bonus? Oral Agreement 20.The evidence on this necessarily comes from Mr Lau and Mr Wong. Ms Ho was not involved in this meeting. There are some inconsistencies between their statements and their oral evidence and I will refer to these as necessary, but I could not say that either impressed me as being particularly truthful or untruthful. As always one has to look at the evidence against the background. 21.According to Mr Lau, in the witness statement which he adopted as evidence, he had a meeting with Mr Wong at the latter’s office on 22 January 1997. He explained the terms of the consultancy contract to Mr Wong, in particular the trade practice that the defendant would have to pay the bonus fee once the Lands Department indicated its preparedness to approve a GFA in excess of the existing area, regardless of whether the premium or other terms were acceptable to the client. Mr Wong then agreed to instruct the plaintiff to apply for lease modification, and then he signed the letter. 22.In oral evidence-in-chief, Mr Lau identified the letter, and said that both he and Mr Wong had a copy, and that Mr Wong appeared able to read the document. This was the first time they had discussed fees. 23.In cross-examination, Mr Lau said that he had seen a letter in the form of the WP offer before, but when he had signed the agreement, he had not been expecting a reply in this form. At that stage, he was not expecting a land exchange; he was expecting a lease modification. Part of the reply for a lease modification would have been different, but it would have been similar; it would also have been in the form of a without prejudice offer of basic terms. He could have put that in the letter, instead of “approval”, but “approval” was normally used. He had in mind that he would charge the bonus once he got the without prejudice offer, and he had explained this to Mr Wong. 24.Asked how he had explained, Mr Lau said this (my note) :
and in re-examination he said (my note) :
25.Mr Lau denied that Mr Wong had said to him that he would not agree on the bonus because he did not know what the premium would be, and that he would not mind paying the bonus provided that the terms and conditions, and the premium offered to him, were acceptable to him. As to the allegation of a trade practice, this did not come out in the oral evidence. 26.Mr Wong’s evidence, as it appears in the written statement which he adopted, is that he noticed the bonus fee, which had not been discussed before, and he asked Mr Lau about it. He told Mr Lau that he would not agree on the bonus fee provision, because he did not know what premium would be charged, and what other terms would be offered, such as the stipulated period of time in which the new town houses, which he intended to build, were to be completed. He said that he would not mind paying $100 per square foot on the excess GFA achieved, provided that the terms and conditions and the premium were acceptable to him. Mr Lau agreed to this, and said that of course the clause meant that only on the defendant’s acceptance of all the terms and conditions would the defendant be obliged to pay the bonus. 27.Mr Wong further said that he only countersigned the letter on these representations by Mr Lau, and on Mr Lau’s assurance that the bonus provision meant that the bonus was only payable on the defendant’s acceptance of the terms and conditions offered by the Lands Department. They both anticipated that terms and conditions, including premium, would be imposed; he would not know these in advance, and therefore he would never have signed the letter, without Mr Lau’s confirmation that this was what the provision meant. 28.Under cross-examination, Mr Wong said that what appeared in his statement was accurate, but then he said this (my note) :
This, he said, came before the point when he told Mr Lau that he would not agree to the bonus fee provision. But he could not explain why it did not appear in the written statement. 29.There is some dispute as to what happened after the plaintiff sent its invoice for the bonus. According to Mr Wong, he telephoned Mr Lau and reminded him of the oral agreement, but Mr Lau denies this. He says that he had no communication with Mr Wong then. He left it to his staff to follow up the invoice, and he only spoke to Mr Wong much later, on a date he could not remember, but before 27 April 1999, when he sent a reminder letter. On that occasion, he says, Mr Wong said that he would not pay, because he had not made any profit out of the matter. 30.There is no written record of either of these telephone conversations, and Mr Wong does not mention any call made later by Mr Lau to him. In fact the allegation of an oral agreement does not appear in written form before the defendant’s letter of 28 March 2001. Mr Wong said that notwithstanding his training as a solicitor he saw no need to put it in the termination letter of 8 May 1998. 31.On 22 January 1997, Mr Lau and Mr Wong agreed to put forward an application for a lease modification. There was some argument in the course of the evidence as to what a lease modification was; Mr Lau considered that it could be done in many ways, including, if the modification involved a lot of changes, a surrender and re-grant of the lease. Some records of the Lands Department were put to Mr Lau, which show that that department keeps separate records for lease modifications and land exchanges. In any event, it appears, both from the oral evidence and the terms of the engagement letter, that the parties had in contemplation that if the Government allowed a change in the GFA, it would be subject to the payment of a premium by the defendant; and of course the letter provides for that. 32.There is no dispute that there was some discussion of what the bonus provision meant, and I have set out above the divergent accounts of what was said. What is notable, however, is that the engagement letter contemplates a two-stage process, namely an approval by the Government of the application for lease modification, on which bonus was payable, and thereafter, if the defendant wanted it, negotiation of the premium, for which a further retainer fee would be payable, and a further bonus calculable in the event of success. 33.This, to me, seems to be the meaning of the engagement letter. However, if Mr Wong’s evidence is right, it means that the parties then made a collateral oral agreement for something totally different. As I understand it, the effect of the oral agreement, read with the letter of engagement would be necessarily be this:
34.The immediate difficulty with Mr Wong’s collateral agreement is that it radically changes the agreement set out in the engagement letter. Further, the possible results are not immediately clear unless one sits down and works them out. There is a loose end left untied, also; suppose that the plaintiff achieved a small and unacceptable premium reduction, so that the defendant did not have to pay the bonus on the GFA increase, would it still have to pay the bonus on the premium reduction? The engagement letter does not seem to make that bonus contingent on anything but achieving a reduction; if the collateral agreement contended for did not cover that bonus, it seems to me that it would still be payable. 35.Mr Wong said in cross-examination as to why he did not seek to make any change to the written agreement that it was very clear to him at the time. It is difficult to accept this, because of the obvious discrepancy between his statement and the account he gave under cross-examination of what Mr Lau said to him. Indeed that is also divergent in that, under cross-examination, he seemed to be saying that the payment of bonus was not just contingent on all the terms and conditions being acceptable to the defendant, but also on the defendant’s making a profit as well. This could not be worked out until the terms had been accepted, the premium paid, the redevelopment carried out and the new buildings sold or leased out. 36.A further point arises from the evidence, which comes from both Mr Lau and Ms Ho, of a trade practice that the bonus would be charged once the Lands Department indicted its preparedness to grant an increased GFA. Such a trade practice would obviously not bind the defendant, unless Mr Wong knew and accepted it, and it is unlikely that he did. But it would mean that PlanArch would be looking to the plaintiff to pay its bonus of $50 per square foot, once the Lands Department approved an increase in GFA, and indeed Ms Ho said that she had approached Mr Lau for Planarch’s bonus and told him that he should bill Mr Wong, because it was time for her to bill Mr Lau. It is very difficult to imagine that any principal contractor agreeing only to take a bonus on a contingency, when it was going to sub-contract the job, and would have to pay the bonus to the sub-contractor in any event. 37.I have also noted that Mr Wong did not put anything in writing about the oral agreement, when he terminated the plaintiff’s retainer. There is some evidence from Ms Ho that Mr Wong only told her that he “did not like Mr Lau”, and it would be strange, since Mr Wong continued to deal with her, if he did not tell her that he had terminated the plaintiff for charging a bonus to which it was not entitled. But it is stranger still that, if Mr Wong wanted to terminate the retainer because of the bonus, he did not put it in writing straight away, especially bearing in mind his legal qualification. 38.Overall, having heard the witnesses and considered the documents I am not satisfied that there was any collateral oral agreement. I find that the parties were bound by the engagement letter only. Construction of the engagement letter 39.The question here is whether the DLO’s WP offer amounted to the “approval by the Lands Department” referred to in the letter, on which the plaintiff would be entitled to the bonus. Mr Lau said under cross-examination that he relied on this letter as the approval, rather than the formal offer of 22 September 1998. 40.Interpretation of a written contract is “the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”: per Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] WLR 896 at 912. 41.Mr Ng SC, for the defendant says that the starting point is the ordinary natural meaning of the word “approval”. He points out that there is nothing in the WP offer which gives any kind of approval, whether in the sense of an actual approval, or of a representation or offer capable of giving rise to legal rights and obligations. He compared the WP offer to a 1978 document whereby the Land Office, in consideration of the payment of a premium, approved the grant of an area of 399 square metres of land to Mr Wong’s father, as an extension to Rural Building Lot No. 724. This required a surrender of the original lot and the re-grant of a new Lot No. 724, which is of course the Land in this action. Various terms and conditions were attached, but there was an actual approval of the grant of the extension. 42.Mr Ng also argues that the purpose of the application was to obtain the right to develop the Land with a larger GFA, whether by lease modification or land exchange. The WP offer did not confer any such right, but was a mere indication of what the Government was prepared to allow. 43.I do not doubt that the defendant’s purpose was ultimately to obtain the right to develop the land with a larger GFA. Both sides had some background knowledge of the procedure to be followed, in order to obtain that right. Mr Lau knew that it might be done by various means, including a actual land exchange. Mr Wong knew that any approval of his application would come with conditions, for that appears in paragraph 4 of the Defence; and he also knew, for he admitted it under cross-examination, that he might receive some sort of standard form letter, and that the WP offer actually received came into that category. 44.According to Mr Wong, what he had in mind appears at paragraph 10 of his statement, namely that :
45.This came, according to Mr Wong, after a suggestion by Mr Lau that an application be made for an increased GFA, rather than renovating the existing building, which was Mr Wong’s original idea. This suggestion is denied; Mr Lau says that Mr Wong told him in the first place that he intended to redevelop the land and achieve maximum GFA. That is probably right, given that Mr Wong had previously engaged Jones Lang Wootton Ltd to apply for a lease modification in 1994, and had thereafter engaged an architect, Wai Hing Wah, in about 1996, but it matters little. The point is that from the outset both parties knew that the defendant’s purpose was to obtain a larger GFA and then proceed, provided that the premium was affordable and the terms and conditions acceptable. 46.Looking at the commercial aspects of the process, it would obviously be necessary first to crystallise the GFA calculation. If no, or no sufficient increase in GFA could be obtained, there would be no point in going ahead to consider the premium and other terms and conditions. If a sufficient increase could be achieved, it would be worth investigating the premium. In fact that is what happened; the defendant, through PlanArch accepted the WP offer, and the DLO went ahead to make a formal offer with a premium attached. It was because the premium was too high, that the defendant did not proceed further. 47.Mr Wong agreed that the WP offer was something of value. Although he did not regard the WP offer as definite enough for his purposes, he agreed that if he wanted to sell the Land, he could show to a potential buyer, in order to make more money on the sale. He also accepted that in 1997, the bonus of $100 per square foot of extra GFA was not a very significant sum in the redevelopment, for he had to bear the costs of the premium, making the foundations and constructing the buildings. 48.It is against this background that the parties signed the engagement letter which, as I have indicated, contemplates a two-stage process. The first stage was to “apply for a lease modification to permit GFA calculation to cover the whole site”. The bonus was payable on the “approval”, but clearly what was necessary at the end of the first stage was not the approval of the Lands Department, in the sense of giving the defendant an absolute right to develop the Land; that could not come at least until the premium was paid and the lease modified, whether by surrender and re-grant or otherwise. Rather it was the crystallisation of the GFA. No doubt that is why the bonus was payable on the increase in GFA. Once the GFA was crystallised the bonus could be calculated. There was no need to wait for anything further. 49.The WP offer clearly did contain a crystallisation of the GFA. It is true that the after did not give a right to the new GFA; it was made without prejudice and hedged around with disclaimers and a warning that the Government would not consider itself bound. However, it said that if the defendant indicated acceptance of the conditions, one of which was the increased GFA of 1,470 square metres, to be calculated according to the attached plan, the matter would go ahead; and so it did. In the later formal offer, the area was reduced after survey by 2 square metres, but that is neither here nor there. The defendant, on receipt of the WP offer, knew what GFA it would get, and could make the commercial decision whether or not to take the matter further. 50.I do not see that the “approval” referred to in the letter of engagement could have been anything other than the WP offer. It could not have been the DLO’s signature on the re-grant. It was not necessary for the approval to be the formal offer, for that added nothing and subtracted nothing (except 2 square metres), and in any event Mr Wong says that he was not clear about the procedure, beyond the WP offer stage. 51.I find, therefore, that WP offer amounted to the “approval by the Lands Department” referred to in the engagement letter, on which the plaintiff became entitled to the bonus fee. Judgment 52.There will accordingly be judgment for the plaintiff in the sum sued for, with interest at the prime rate plus 1% from the date of the Writ to the date of judgment and thereafter at the judgment rate, and the costs of the action (nisi) to be taxed if not agreed.
Mr Anthony Chan SC, instructed by Messrs Y C Lee, Pang & Kwok, for the Plaintiff Mr Peter Ng SC and Mr Thomas Au, instructed by Messrs Deacons, for the Defendant |