OR HEI BUN ALFRED AND ANOTHER V. CITILINE PROPERTIES AGENCY

1992, SCTA No.14

HEADNOTE

APPEAL FROM SMALL CLAIMS TRIBUNAL - WAIVER - CONSIDERATION NOT REQUIRED IN ESTOPPEL THOUGH REQUIRED IN VARIATION OF CONTRACT - FAILURE TO DISTINGUISH BETWEEN ESTOPPEL AND VARIATION - MOTIVE IRRELEVANT TO THE FINDING OF CONSIDERATION - FACT THAT THE DEFENDANT WOULD IN ANY EVENT HAVE SOLD THE PROPERTY EVEN WITHOUT THE PROMISE OF THE CLAIMANT TO A REDUCTION OF THE COMMISSION WOULD NOT AFFECT THE EXECUTION OF THE PROVISIONAL SALE AND PURCHASE AGREEMENT WHEREIN THE CLAIMANT WAS APPOINTED COMMISSIONED AGENT BEING CONSIDERATION FOR THE PROMISE

1992,SCTA NO. 14

IN THE SUPREME COURT OF HONG KONG

SMALL CLAIMS TRIBUNAL APPEAL

(CLAIM NO. H-14000/92)

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REASONS FOR JUDGMENT

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1. This is an appeal by the defendants against an award made by the learned Adjudicator on 25th August 1992 for the sum of $10,750 and costs $200. Leave to appeal was granted on 3rd November 1992, and the appeal was heard on 18th December 1992 and 3rd February 1993. The appeal was allowed and reasons therefor have been reserved. I now hand down written reasons for the decision.

2. The defendants purchased a flat through the services of the claimant, a property agent, on 4th October 1991. Service charges were payable by the purchasers only, i.e. the defendants, at the rate of 0.5% of the purchase price of $4.15 million, i.e. $20,750. Though the sale and purchase was completed on 10th December 1991, the defendants only settled part of the service charges, i.e. $10,000, on 22nd January 1992. As a result of financial difficulties, the defendants were forced to put the flat on the market for sale, again via the claimant. A sale was effected on 24th January 1992, 2 days after the part payment of service charges. Prior to the execution of the provisional sale and purchase agreement at the claimant's office, the defendants secured a promise from the staff of the claimant that the said outstanding balance of the service charges would be waived. The claimant stood to earn another $33,800 from the new purchaser in the defendant's sale of the flat. Not only did the learned Adjudicator find such a promise was given, he further held that the claimant was bound by the said promise. However, notwithstanding the said findings, the learned Adjudicator held that the defendants should still be liable to pay the said outstanding balance of the service charges on the ground that such waiver was not supported by any consideration. His written reasons read :-

"However, I found that the promise of waiver was gratuitous. Mr Or (the defendant) had done what he would do in any event, i.e. to sell the property there and then. He needed cash for his own purpose and he had decided to sell the property despite the possible loss he had to bear. He had met prospective buyer and the selling price was agreed. I did not believe that having gone that far he would back out from the transaction simply because his off-the-cuff request (as I found it) of waiver was not acceded to. I found the promise of waiver was not supported by consideration on the part of the Applicants (the defendants)."

3. It is unclear in what precise context did the learned Adjudicator use the term "waiver". Whether he was using it in its ordinarily understood context of a forbearance of legal rights giving rise to an estoppel; or the less frequently used context of a variation of contractual rights. If it be the latter usage, then he is abundantly correct in law to hold that a variation, to be enforceable, requires the support of consideration. If he was referring to the situation of an estoppel, then he is clearly wrong in law to hold that an estoppel has to be supported by any consideration. The distinction of a "waiver", in its popular usage, with that of a variation of contractual rights is succinctly summed up in Chitty on Contracts :-

"A waiver is also distinguishable from a variation of contract in that there is no consideration for the forbearance moving from the party to whom it is given. It may therefore be more satisfactorily to regard this form of waiver as analogous to, or even identical with, equitable forbearance or 'promissory estoppel'. Although consideration need not be proved, certain other requirements must be satisfied for such an estoppel to be effective : first, it must be clear and unequivocal; secondly, the other party must have altered his position in reliance on it, or at least acted on it." (26th edition, para 1610).

4. The defendants "pleaded" in their statement in defence that Mr Or "asked the agent to subsidize his loss by waiving the $10,750 commission due. The agent refused and Or decided not to sell the property. After a lengthy discussion, the agent finally agreed to waive the commission balance due and agreed to inform the company the same. Or signed the sales contract knowing that his loss was reduced by $10,750. (My emphasis)" It appears abundantly clear to me that the defence is one of waiver/estoppel in view of the plea of reliance. Therefore, though the learned Adjudicator did not have the plea of estoppel in mind (as is apparent from the absence of any mention of it in his written reasons), I shall first approach the case on the basis of a waiver/estoppel.

5. It is regrettable that the learned Adjudicator did not see fit to explain why he held that the waiver must, as a matter of law, be supported by consideration. It is unclear whether he had in mind authorities like Foakes v. Beer (1884) 9 App.Cas.605. And, if he did, whether he had considered the line of authorities commencing from Hughes v. Metropolitan Rly (1887) 2 App.Cas.439 and Central London Property Trust Ltd. v. High Tree House Ltd [1947] K.B.130. At common law, the general rule is that a creditor is not bound by a promise to accept part payment in full settlement of a debt. A promise to pay part only of a debt is not accord and satisfaction and provides no further consideration as it is a promise to perform part of an existing legal obligation. This was so held by the House of Lords in Foakes v. Beer, supra. However, relying on the earlier decision of the House of Lords inHughes v. Metropolitan Rly, supra, Denning J, as he then was, held in the High Tree case, supra, that a promise intended to be binding and be acted upon, and in fact had been acted on, is binding upon the promisee in equity even in the absence of any consideration. He added, at p.134, that "the logical consequence no doubt is that a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is binding notwithstanding the absence of consideration." Thus, it has been held by the Privy Council in Ajayi v. R.T. Briscoe (Nig) Ltd. [1964] 3 All ER 556, that when one party to a contract in the absence of fresh consideration agrees not to enforce his rights an equity is raised in favour of the other party, i.e. a promissory estoppel, subject to the qualifications (a) that the other party has altered his position, (b) that the promisor can resile from his promise on giving reasonable notice, which need not be formal, giving the promisee a reasonable opportunity of resuming his position, and (c) that the promise only becomes final and irrevocable if the promisee cannot resume his position.

6. On the question of reliance, it appears to be the belief of the learned Adjudicator that the defendants would still have proceeded with the sale of the property even if the waiver was not agreed to. That may very well have been the position, though it is apparent that the learned Adjudicator was purely speculating on the hypothetical situation he postulated secretly in his own mind. I referred to it as a secret postulation as the said hypothesis has never been suggested in evidence, or by the claimant, nor was it ever put to the defendants in cross-examination or by the learned Adjudicator himself at all. The unchallenged evidence of Mr Or is that he agreed to sell the property only after the waiver was agreed to. The learned Adjudicator accepted that to be the case. The inevitable inference is that the waiver was agreed to by the staff of the claimant to induce or encourage the defendants to consent to the proposed sale which would bring in a further commission to the claimant. The motivation behind the sale, only about 1 month after the completion of the purchase, was to reduce loss. It would be totally unrealistic for anyone to say that a reduction of the loss to the extent of $10,750 by waiving the outstanding service charges would have no effect at all in the minds of the defendants, though it may not be the only or even major reason for their consent to sell at that stage of time rather than to hold on to their investment for a longer period. Thus, even assuming the learned Adjudicator's assumption can be supported; he did not find the forbearance to have no effect at all; or that the defendant did not place any reliance, however insignificant, on it at all. What he "believed" was that the defendant would not "back out" from the proposed sale if no such waiver was forthcoming. In the absence of any specific finding on the issue of reliance on the waiver, I find that the defendants did act upon the said promise and had taken into consideration the reduction of their loss consequential upon the said waiver when they consented to sell the property to the proposed purchaser via the services of the claimant. It must be noted that up to that stage, prior to the giving of the waiver, there was no legal obligation on the part of the defendant either to sell the property or to use the claimant's services in the sale. As by selling the property, the defendants had embarked upon an irreversible course, it would be totally inequitable to allow the claimant to withdraw its promise, with or without reasonable notice. In the premises, the waiver has become final and irrevocable, and the claimant is estopped from enforcing any right in respect of the said outstanding balance of the service charges, the same having been extinguished by the waiver.

7. However, even if the defence is to be considered as one of waiver/variation of contractual rights, I am of the view that the learned Adjudicator's finding of an absence of consideration cannot be supported. The learned Adjudicator appeared to have failed to distinguish "motive" with "consideration". The reason or motive for the defendants' quick sale soon after the purchase might have been their financial difficulties. It may very well be that they would have been prepared to accept full loss without the waiver. But, the fact is that the waiver was offered by the claimant as an inducement to encourage the defendants to sign the provisional agreement there and then so that it can make another sale and earn another commission. The defendants were not obliged to sign the provisional agreement at that time. Mr Or was hesitant and discussion took an hour. All these are unchallenged evidence before the learned Adjudicator. It is immaterial, for the issue of consideration, whether the defendants would or would not have agreed to sell even if the waiver was not given. Whether Mr Or would have "done what he would do in any event, i.e. to sell the property there and then", which goes to his motive, cannot be relevant to whether there is consideration for the waiver. The entering into of the provisional agreement by the defendants whereby the claimant was appointed the commissioned agent is good consideration in law. In the premises, even on the basis of a variation of contract where consideration is required, there is consideration to support the said waiver.

8. By reason of the above, the defendants ought to succeed on their defence of waiver/estoppel. Alternatively, on the defence dealt with by the learned Adjudicator, being one of waiver/variation of contract, the defendant should also succeed. In the premises, the appeal was allowed with costs, and the award and costs order made against the defendants were set aside. There being no application by the defendants for costs below, no order was made in respect thereof.