Wong Shun also known as Sam Wong v. Overseas Trust Bank Ltd
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IN THE COURT OF APPEAL 1986, No. 102 BETWEEN
________________ Coram: Sir Alan Huggins, Ag. C.J., Hon. Fuad, J.A. and Hon. Power, J. Date of Hearing: 2nd to 5th December, 8th December and 10th December, 1986 Date of Judgment: 27th January 1987 ________________ JUDGMENT ________________ Power, J. 1. This is an appeal by the defendant, the Overseas Trust Bank, against an order by Mortimer J. that it pay the plaintiff, Wong Shun, a commission of $18 million. The facts, as found by the trial judge, are as follows: 2. In September 1983 the appellant owned about 88% of the shares in the Hong Kong Chinese Bank. It was interested in disposing of all those shares if a suitable buyer could be found. The plaintiff who was then the Sales Manager for I.B.M., through Peter Lo, a partner in Messrs. Chan & Lo Solicitors, heard that there was possibly a bank for sale in Hong Kong. A John Sun, who worked for a French deposit-taking company, told the plaintiff that he knew someone who would be interested in buying a bank in Hong Kong. The plaintiff, seeing an opportunity to earn commission if he were able to bring the parties together, had John Sun introduce him to Paul Hsia on the 17th September 1983. Paul Hsia was a senior adviser to the Chairman of the Lippo Group, Mochtar Riady. Hsia said that the group were looking for opportunities to do business in China and wanted a bank in Hong Kong and gave the plaintiff a booklet detailing the group and its intentions. The plaintiff asked to be appointed agent to look for a Hong Kong Bank on commission. At a later meeting, on the 18th of September, Paul Hsia told the plaintiff that he was not willing to appoint him as agent but that he was prepared to give him a letter. This letter, which is dated the 21st of September, describes Paul Hsia as Senior Adviser to the Chairman and Senior Vice-President of the Lippo Group. It states, inter alia,
and goes on to say :
3. The plaintiff then sought to find the bank which was for sale. Through Lam Ying-wai, a school headmaster, he was put in touch with Har Lui-hon and thence with Patrick Chang, the Senior Manager of the defendant. In the course of negotiations the plaintiff ascertained that the defendant was intending to sell the Hong Kong Chinese Bank but he refused, despite Chang's insistence that he do so, to disclose the name of the possible buyer. 4. On the 12th October 1983 the plaintiff and Chang agreed that an agency agreement should be drawn up and that, when it was signed, the plaintiff would release the name of the intended buyer to Chang and that, if Chang was satisfied with the name, the agreement would become effective and that, if he was not, the whole thing would be torn up. Chang was being advised at this time by Joe Chan, the other partner in the firm of Chan & Lo. On the 22nd of October, a meeting was held at Chang's flat at Grand Court in Happy Valley at which Joe Chan, Har Lui-hon, Lam Ying-wai, Chang and the plaintiff were present. At this meeting detailed arrangements were made about commission, about who was to share in the commission and as to the time when the agreements were to be signed. 5. On the 25th October, the agency agreement between the plaintiff and the defendant was signed in Chang's office. The plaintiff then disclosed the name of the intended buyer and gave a copy of the aforementioned booklet to Chang. Chang accepted the intended buyer as a competent buyer and the agency agreement became effective. There were two originals of this agreement. One was placed in a safe-deposit box at O.T.B. in the name of Har and the plaintiff and the other was given to Joe Chan to keep on behalf of Chang. The agency agreement provided that the parties thereto were the defendant ("the seller") and the plaintiff ("the agent") and that the defendant appointed and engaged the plaintiff to negotiate on its behalf the sale of its shareholdings and rights in the Hong Kong Chinese Bank to any such company or person (“the Intended: Buyer") in the terms detailed in the 3rd schedule or "such other terms as may be agreed upon by the seller and the Intended Buyer". The 3rd schedule provided that the 88% of the shares in the Hong Kong Chinese Bank owned by the defendant were to be sold for five hundred and twenty million dollars. It provided that a 10% deposit of 50 million was to be paid and that there was to be completion within two months from the signing of the sale and purchase agreement. The 50 million deposit, it will be noted, is not 10% of the agreed price. This came about because the price was changed at the meeting of 25th October from $500 million to $520 million so that it would, more or less, encompass the amount of the commission that was to be paid to the plaintiff. The agreement provides that the defendant will accept the appointment to negotiate in the proposed terms or such other terms as may be agreed between the seller and the intended buyer. It then provides that :
It provides the circumstances in which the commission shall be paid and the time at which it shall be paid. It concludes with paragraph 5 which states :
6. On the 16th October there was a meeting between Paul Hsia and the plaintiff and on the 17th October Hsia was taken by appointment to the Overseas Trust Bank where he met C.F. Chung and Andrew Yeoh. These two persons had been appointed by Chang to negotiate for the defendant both in respect of this matter and in respect of other proposed sales. This meeting was "very preliminary" and it was arranged that if Paul Hsia and the Lippo Group wanted to take the matter further, Hsia would revert to the defendant. 7. Thereafter Chang asked Andrew Yeoh whether there had been any “feedback" from Paul Hsia. These questions went on, probably, into December or January. The plaintiff telephoned Paul Hsia in the United States who, on the 9th November, told the plaintiff that "right now" his boss Mochtar Riady was too busy with newly acquired banks in the U.S. and that after he had settled things in the U.S., Riady would contact the O.T.B. direct. The plaintiff passed that message back to Chang whose response was “well, there is no point in standing and waiting. Find other buyers on the same terms as in the agreement”. 8. As a result of other negotiations, the defendant entered into a Memorandum of Agreement on 19th March 1984 to sell its shares to a group known as Harapan. This group put down its deposit of thirty million dollars on the 19th March 1984 and agreed to, pay a further instalment on the 23rd March. However, the group was in financial difficulties and on the 26th of March the deposit was forfeited. In June or July Mochtar Riady visited Hong Kong and called on Chang and, as result of negotiations, the shares in the Hong Kong Chinese Bank were sold to Airfield Limited which is part of the Lippo Group. 9. The defendant argued initially that the agreement was limited in its effect to a sale on the terms in the 3rd schedule and, that as the sale eventually made was not in accordance with those terms, the plaintiff could not succeed. The judge quite properly, given the terms of the agreement, rejected that view. 10. He then turned to consider the defendant's contention that the plaintiff was not entitled to any commission as he, having been appointed under the agreement to negotiate on behalf of the seller, had done no negotiating at all. The judge having considered the evidence in this regard was satisfied that “whether one looks at the case as a release which relates to the first part or as a breach of the implied term which is relied upon by Mr. Swaine or an estoppel by convention, one achieves the same answer, that the plaintiff is not to be deprived of success in this case on the contract simply on the basis that he did not negotiate”. 11. The judge then turned to the contention that it had not been established that the intended buyer, the Lippo Group, was in the market at the time when the introduction was made. He did not have the slightest doubt that Paul Hsia had the authority to make the approaches which he did make. 12. He next dealt with the question as to whether the "intended buyer" referred to in the agency agreement was the entity that eventually bought. He found, without hesitation, that the plaintiff's disclosure was wide enough to cover Airfield, the eventual purchaser. 13. He then considered what he termed the "real question in this case" which was whether, at the time when the Lippo Group bought, the agreement of the 25th October 1985 was still in force. The contentions of the defendant then, as they-are now, were that long before the sale the agreement had, in the words of clause 5, “fallen through” and, anyway, that the original disclosure and introduction was not an effective cause of the eventual sale. 14. It was suggested that the plaintiff had acknowledged that the sale had fallen through but the judge was satisfied on the evidence that he had not. He then had to ask himself whether the agreement with the Harapan Group and the payment of the deposit thereunder on the 19th of March put an end once and for all to the agency agreement. The judge examined the factual position as follows :
15. The judge was finally satisfied that Patrick Chang "knew that the renewed negotiations with Mochtar Riady had come about because of his knowledge through the plaintiff that Mochtar Raidy was in the market". The judge found in the outcome that he was "satisfied on the balance of probabilities that the effective cause of the sale which was eventually made was indeed the plaintiff's disclosure of the intended buyer". 16. The defendant's first ground-of appeal is that the trial judge was wrong in accepting the evidence of the plaintiff and Lam Ying-wai where the same conflicted with the evidence of the other witnesses. I have examined with care the arguments of Mr. Ching in this regard and am satisfied that there is nothing which would warrant this Court interferring with the trial judge's findings of fact. The real conflict that he had to resolve was whether the plaintiff or Patrick Chang was telling the truth. He saw both of these witnesses, he heard all of their evidence, he examined that evidence against the context of the other evidence and was, in the end, satisfied to accept the evidence of the defendant. The trial judge was perfectly well aware of all the reasons that have been urged upon us for not believing the evidence of the plaintiff. I am satisfied that he took them into account but was, nonetheless, prepared to accept that evidence. 17. The second ground of appeal was that the learned trial judge was wrong in failing to find that the plaintiff himself was in breach of the agency agreement in that he failed to take any steps to negotiate the sale of the shares on behalf of the plaintiff. The matter is essentially one of fact. Did Patrick Chang tell the plaintiff that he did not want him to negotiate on behalf of the O.T.B. The trial judge was satisfied that he did. He found that "the plaintiff was initially released from negotiating and later there was never any question of him negotiating." He held in this regard that "whether one looks at, the case as a release, which relates to the first part, or as to the breach of the implied term which is relied upon by Mr. Swaine, or an estoppel by convention, one achieves the same answer, that the plaintiff is not to be deprived of success in this case on the contract simply on the basis that he did not negotiate." I am satisfied that one need not turn to look at the breach of the implied term or estoppel by convention. The defendant was entitled to insist that the plaintiff conducted negotiations. The judge was satisfied that the defendant, for its own purposes released the plaintiff from that obligation. He was perfectly correct in holding, therefore, that the plaintiff could not be deprived of success on the basis that he did not negotiate. 18. The third ground of appeal was that the trial judge was wrong in failing to find that upon the agreement to sell the shares to the Harapan Group, the agency agreement came to an end. However much this matter may be canvassed and however many cases argued in relation thereto, it, in the end, must be resolved by ascertaining the intention of the parties as expressed in the agency agreement. The plaintiff having revealed the name of the intended buyer was appointed to negotiate on behalf of the seller on the terms in the schedule or on such other terms as may be agreed upon by the seller and the intended buyer. It was common ground that the intended buyer was the Lippo Group. No argument has been advanced on this appeal that the Lippo Group was not the eventual purchaser. Mr. Ching approaches the problem by submitting that once the vendor had entered into an agreement to sell, thus passing the equity in the property to a person other than the intended purchaser, he had nothing left to sell to the intended purchaser and that the agency agreement must, therefore, be regarded as having "fallen through". Attractive as this argument may seem at first sight I am satisfied, after consideration, that it must fail. It, wrongly in my view, focuses attention, when one is considering what will bring the agency contract to an end, upon the actions of the vendor after he has entered into the contract with the agent rather than upon what was in the contemplation of the parties, in that regard, when they entered into the agreement. 19. Their agreement was, I am satisfied, that, if the vendor did not withdraw the property from sale or sell it to some other person but did, in the end, no matter what might have transpired in the mean time, sell it to the person introduced by the buyer, commission would have to be paid. It was never, I am satisfied, intended by the parties that their agreement would be brought to an end if the vendor entered into an agreement to sell which was never consummated. I hold that the agreement to sell to Harapan did not bring the agency agreement to an end. 20. The fourth ground of appeal was that the trial judge was wrong in finding that the plaintiff was the effective cause of the sale of the shares to Airfield Ltd. This again is essentially a matter of fact. The trial judge was satisfied that Patrick Chang "knew that the renewed negotiations with Mochtar Riady had come about because of his knowledge through the plaintiff that Mochtar Riady was in the market". The trial judge approached this matter with particular care and said :
This was a finding of fact, based upon the evidence, which the trial judge was entitled to make. I can see no proper ground for interferring with it. 21. The appeal must, for the reasons set out above, be dismissed. Sir Alan Huggins, V.-P.: 22. Counsel for the Appellant has argued three main points on the appeal:
23. The rules require that the appellant shall state the grounds of his appeal. It is not enough merely to allege that the judge has erred: the errors alleged must be particularized, so that the respondent shall know what case he has to meet. The Notice of Appeal here was totally inadequate. In relation to the findings of fact it did not specify the findings complained of or the grounds for saying that they were wrong. Not surprisingly the Appellant has completely failed to show that any of the findings was wrong. 24. The argument that, on the true construction of cll.2 and 5 of the Agreement, the agreement came to an end when the Defendant entered into a binding contract for the sale of the shares to the Harapan Group is a formidable one, although (despite repeated amendments) the Defence did not allege that the agency agreement had been terminated - as, in my view, it should have done. No point has been taken on the pleadings. This was not an agreement to introduce a person who purchased the shares but an agreement “to negotiate … the sale … to … ‘the Intended Buyer’”. It was therefore essential that an agreement for sale to the Intended Buyer should be concluded before the commission would be earned. The agreement to sell to the Harapar. Group was executed before the agreement to sell to the Intended Buyer and it is urged that the agency agreement had therefore “fallen through”. I have no doubt that the judge fully appreciated both the issue which had been raised and that, in deciding that issue, he was required to ascertain the intention of the parties from the words they had used. It was very much a matter of first impression, and he came to the conclusion that the agency agreement had not fallen through but was “put into intensive care”. Mr. Ching submits that that was wrong, because once the shares were sold to the Harapan Group there was nothing left to be sold to Airfield Ltd. He recognizes that there is a distinction between a sale and an agreement to sell but argues that the agreement with Harapan was not a sham and could have been specifically enforced, so that the distinction is immaterial to the present case: the beneficial interest had passed to Harapan and any subsequent sale to Airfield Ltd. would have been a breach of contract which could be restrained by injunction at the instance of Harapan. For all that, I cannot agree that what the Plaintiff is saying is that the Defendant could ignore the contractual rights of Harapan. I see no reason why the Defendant should not have sold to the Lippo Group “subject to the rights of Harapan”. Mr. Ching says that that would have been unrealistic, since the Lippo Group would never have considered entering into such a contract: any bystander would have said that the conclusion of an enforceable agreement for sale to a third party would bring the agency agreement to an end. 25. The difficulty as I see it is that one must visualize a bystander with legal knowledge or with foresight of what actually happened. He would have had to be asked "Suppose the Defendant enters into a contract for sale of the shares to Harapan but does not in fact go through with that sale because it is terminated by breach within eight days and further suppose that the Defendant then enters into an agreement for a sale to the Lippo Group (the Intended Buyer) just twelve months after the agency agreement is signed. Would the Plaintiff then be entitled to his commission?” In my view the answer would inevitably have been: “Of course he would be entitled to his commission: the Plaintiff would have achieved what he undertook to do and it would be unjust t hat he should not be paid. The agreement with Harapan will have beer- merely a temporary hitch in the negotiations for a sale to the Lippo Group". That is how the trial judge saw it and I am unable to say that he was wrong. It seems to me to be nothing to the point to ask what the position would have been if there had been a succession of unsuccessful attempts to sell to other possible buyers and if the sale to Airfield Ltd had not been effected for several years: obviously a time would come when any reasonable person would say that the agency agreement had fallen through, but we are concerned to decide whether, in the circumstances of this case, that time had arrived. The language used was imprecise and infelicitous and I see the force in Mr. Ching's argument. The argument has the added attraction that it would give the Defendant an escape from a contract which manifestly provided for an exorbitant commission and which probably would never have been agreed to but for the temptation offered by the very high price of $520,000,000 which was anticipated. Nevertheless I am not persuaded that it ought to succeed. 26. It was then contended that the Plaintiff failed to earn his commission, because he did not “negotiate” the sale to Airfield Ltd. On the judge's findings the Plaintiff made the introductions and was then told that the Defendant and the intended buyer would negotiate directly between themselves. Any “failure” by the Plaintiff to negotiate was thus due directly to the act of the Defendant and the Defendant cannot be heard to complain. In my view the judge was entitled to conclude that the effective cause of the sale to Airfield Ltd. was the Plaintiff's disclosure of the Intender Buyer's identity to the Defendant. 27. I would dismiss the appeal. Fuad, J.A.: 28. Mortimer J. held, though not without some difficulty, that the Plaintiff was entitled to the huge sum of $18m. he claimed as commission for what, on any view, must be regarded as very little effort. My Lords are for upholding his decision. I have had the advantage of reading, in draft, the judgments just delivered and I have reached a different conclusion. 29. My Lord Power's review of the background of the case makes it possible for me to move directly to address the only issue upon which I am in respectful disagreement with the other members of this Court. 30. It is common ground that the proper test to be applied in cases such as the present is whether upon the true construction of the agency agreement the event has occurred that entitles the agent to his commission. The event must, however, have taken place while the agreement was still operative. 31. No general propositions can be formulated for each case depends upon the express terms of the contract in question (and any term that can legitimately be implied) applied to the facts. The authorities cited to us, which were mainly what I might call "estate agents' cases", are mere illustrations on their particular facts. 32. The agreement of 25 October 1983 was not an exclusive agency contract; the Defendant bank (“the O.T.B.”) was not prohibited from selling except through the agency of the Plaintiff. 33. As I read clause 2(a) of the agreement, the Plaintiff is entitled to his commission as soon as the intended parties enter into a sale and purchase agreement in respect of the Hong Kong Chinese Bank shares, whether or not a deposit is paid, and whether or not a transfer of the shares is eventually effected. 34. The effect of clause 2(b) is that if the shares are transferred to the intended buyer otherwise than under a sale and purchase agreement, the commission is payable to the Plaintiff, but only when the transfer is actually executed. 35. As we know, the O.T.B. did not sell the shares immediately to the intended buyer (the Lippo group). Rather, some two months or so after the agency agreement had been entered into, the O.T.B. entered into negotiations with other possible purchasers. Serious negotiations began with the Harapan group who signed a letter of intent on 18 February 1984 which was amended on 27 February. Then, on 19 March 1984 a memorandum of agreement was drawn up between the O.T.B. and the Harapan group for the sale and purchase of the shares for $490,900,000. Harapan got into financial difficulties and withdrew from the sale on 26 March 1984, forfeiting the deposit of $30m. they had put down on signing the memorandum. 36. Airfield Ltd. (acknowledged to be part of the Lippo group for the purposes of this case) bought the shares from the O.T.B. under an agreement dated 31 October 1984, just over one year after the agency contract had been made. 37. It was contended on behalf of the O.T.B. that as soon as their memorandum of agreement with the Harapan group had been entered into, the proposed sale envisaged by the agency agreement must be regarded as having fallen through, so that under its terms no commission was payable. Mr. Charles Ching for the O.T.B. submitted that this was so as a matter of law and that the memorandum of agreement between the O.T.B. and the Hanapan group had been specifically enforceable. 38. A great deal of time was spent during the course of the hearing of the appeal (and no doubt before Mortimer J. too) examining and discussing that memorandum. For the purposes of the decision that I have reached, all that it is necessary for me to say is that I have no doubt that it had contractual force and was therefore legally binding. I understood Mr. Swaine finally so to concede. 39. I now turn to consider what meaning must be given to clauses 2(c) and 5 of the agency agreement reading the agreement as a whole. Clause 2(c) is, in these terms:
And clause 5 says:
40. I will interpolate here that in my judgment the expressions “proposed transaction” in clause 2 (c) and "said proposed sale” in clause 5 refer not to the completed transfer of the shares, but to the execution of a sale and purchase agreement. 41. As I read them, clause 2(c) and clause 5 have different purposes. Clause 2(c) defines the circumstances in which no commission is payable, while clause 5 governs the duration of the agreement. 42. Our function is to ascertain what the parties to the agency agreement meant by the words that they used and to give effect to the intention so expressed. 43. In my respectful judgment, upon the signing of the memorandum of agreement between the O.T.B. and the Harapan group, a legally binding executory contract, “the negotiation or proposed transaction” (clause 2 (c)) and ("the said proposed sale” (clause 5) must, by any fair use of language, be regarded as having “fallen through”. On 19 March 1984 there could no longer have been a proposed transaction with or proposed sale to the Lippo group still subsisting within the meaning of the agency agreement, unless the contractual arrangements between the O.T.B. and Harapan were a sham, which has not been suggested. Even if the Lippo group had maintained their interest in the shares, the O.T.B. could not, upon that date, still have been intending to sell the shares to the Lippo group. That would not have been a commercially practical possibility, and they were not free to do so. 44. I do not see how the fact that the Harapan group had later to withdraw from the purchase (even though it was only after the passage of eight days) can affect the reality of the position. The matter can be tested in this way. Suppose that legally binding agreements had been executed between the O.T.B. and other intending purchasers over a lengthy period of time, and each in turn had for one reason or another not reached completion, could it be said that the proposed transaction between the O.T.B. and the Lippo group which was within the contemplation of the parties who signed the agency agreement on 25 October 1983 had not, as a matter of fact, fallen through? I think not. 45. In my opinion, once it can be said (as I believe it must) that, upon the execution of the Harapan memorandum, the proposed sale to the Lippo group fell through, I do not think it would be right, with hindsight, to say that it had not fallen through because, as it turned out, the' Harapan group could not complete the purchase and the Lippo group did buy the shares some seven months later. 46. On this view of the position, if one looks at clause 2(c), no commission was due to the Plaintiff because the proposed transaction fell through. And if one applies clause 5, then the agency agreement came to an end and no obligations under it remained after 19 March 1984. 47. It seems to me that on the facts found by Mortimer J. (and I agree that his findings based on his assessment of the evidence should not be disturbed) the Plaintiff would have succeeded if the agency contract had simply stipulated that he would earn his commission if he introduced a purchaser, on the assumption that he could establish that his services were the effective cause of the 31 October 1984 transaction being brought about. The Plaintiff would also have been able to claim his commission if his contract had said that he was entitled to it at any time in the future if the “intended buyer” bought the shares. But the agreement did not make provision on these lines. Instead, there were the “fallen through” provisions. 48. It will be seen that on my view of the facts none of the grounds in the Amended Respondent’s Notice can be maintained. If the agency agreement was at an end, since the O.T.B. were always free to sell to anyone they wished, there could be ho breach of any oral collateral contract (paras. 1 & 2). Even if the Plaintiff could be regarded as the effective cause of the sale that was eventually made (para. 3) he is not entitled to his commission because the agency had terminated. He cannot claim it on the basis of being the effective cause of the transaction unless there subsists a contractual obligation on the part of the principal to pay it. 49. Mr. Swaine complained that the O.T.B. had not pleaded that in terms of the agency agreement the proposed sale to the Lippo group had "fallen through!' when the Harapan agreement was entered into, and pointed out that he had not objected to Mr. Ching's submission before the trial court only on the basis that they were put forward as a matter of law. 50. I think Mr. Swaine is right and it is no light matter. It was not a matter of law. In my view the question was one of mixed law and fact, and the facts upon which Mr. Ching based his submissions as to the effect of the Harapan deal upon the agency agreement should have been pleaded. However the issue was very fully argued before Mortimer J. and before us, and the Harapan agreement was recited in the Re-amended Defence, although for a different purpose. And so, I would have granted leave to amend it so that it was consistent with the facts proved. I feel this would be necessary to do justice in the case, for I have been persuaded that the Plaintiff did not discharge the onus of showing that he was entitled to the $18m. commission he claimed. 51. I would, therefore, have allowed the appeal. Mr. Charles Ching, Q.C. and Mr. Ronny Tong (Baker and McKenzie) for the Appellant/Defendant. Mr. John Swaine, Q.C., Mr. Y.C. Mok and Mr. J.J.F. Swaine (Fairbairn and Kwok) for the Respondent/Plaintiff. |