CHEUNG MAN KIT v. TAI KAM HO

DCCJ 4222/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4222 OF 2005

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JUDGMENT

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THE FACTUAL BACKGROUND

1. This is an action for dishonored cheque in the sum of $200,000. The circumstances giving rise to this action arose from a written tripartite provisional sale and purchase agreement dated 29 May 2005 entered between the Plaintiff as the owner and vendor of the property (“the Property”) known as No. 37, Begonia Path, Palm Spring, Yuen Ling, New Territories and the Defendant as the purchaser and Centaline Property Agency Limited (“Centaline”) as the property agent.  This written agreement cannot be admitted as evidence according to section 15 of the Stamp Duty Ordinance, Cap. 117 as it has not been stamped and solicitors for the parties had not given any undertaking to this court to cause the agreement to be stamped in accordance with the requirements in the said provision.  The purchase price as shown in the provisional agreement was in the sum of $4.7 million and the deposit on the signing of the agreement was in the sum of $200,000.             

2. The cheque in this action (“the Cheque”) was in payment of the said sum of $200,000 deposit.  According to the Defence and the Defendant’s evidence, the Defendant on 29 May 2005 was introduced to a number of properties in Palm Springs including the Property by two property agents from Centaline, a Miss Yau ("Yau") and a Mr. Lung ("Lung"). After the Defendant had viewed the Property, he was advised of the market price which was at the region of $4.5 million and $4.6 million (“the Market Price”). The Defendant was desirous of purchasing the Property at or below the Market Price and he therefore asked the agents to negotiate the price with the Plaintiff. Thus, upon the Defendant’s request, Yau and Lung agreed to make an attempt to persuade the Plaintiff to sell the Property at or below the Market Price. According to the Defendant, the provisional agreement was signed as a result of this representation allegedly made by the said agents.  As the price of the Property was yet to be agreed, when the Defendant signed the provisional agreement, most of the particulars including the purchase price of $4.7 million now appear in the provisional agreement were left blank. After he signed the provisional agreement, the Defendant drew the Cheque and gave it to Mr. Lung under strict instruction by the Defendant that Lung was not to part with the Cheque without his confirmation. 

3. On the evening of 29 May 2005, the Defendant eventually learnt, to his surprise, that the agreement was already signed by the Plaintiff and the Cheque was given to him but the purchase price was stated to be in the sum of  $4.7 million – not the Market Price.

4. The Defendant’s version of events as stated above cannot be disputed by the Plaintiff as the Plaintiff did not have any knowledge of the alleged understanding between the Defendant and the said agents of Centaline.  As a matter of fact, the parties had not met or communicated with each other during the entire property transaction. The Plaintiff signed the provisional agreement and took delivery of the Cheque on the same day of 29 May 2005 after he was persuaded by another agent of Centaline, a Mr. Tam through whom the Plaintiff had previously purchased the Property for investment, and Yau to agree to sell the Property at $4.7 million – a price below the Plaintiff’s original asking price of $4.9 million.  The Plaintiff had agreed to pay Centaline 2% commission because the Plaintiff had promised Mr. Tam to pay Centaline higher commission if he found a purchaser for the Property.  When the Plaintiff presented the Cheque on 31 May 2005, it was dishonored.

5. Hence the writ of this action dated 30 August 2005 and this application dated 16 May 2006 under O.14 of the Rules of District Court.  Centaline is not a party to this application however I should mention that the Defendant issued a Third Party Notice against Centaline on 17 February 2006 for indemnity.

THE RELEVANT PRINCIPLE

6. The law on O.14 is settled and not in dispute.  Suffice it to say that the Defendant in this application has an onus to show that it has a defence or that there are issues in dispute requiring them to be resolved at trial rather by embarking on a mini-trial.  Hence, in deciding whether the Defendant should be given leave to defend, it is sufficient for me to ask myself whether the Defendant’s assertions made in the affirmation or otherwise are believable (Ng Shou Chun v Hung Chun San [1994] 1HKC155)

THE DEFENCE AND THE MAIN ISSUES

7. So far as the facts of this case are concerned, it becomes immediately apparent from the factual background above that the Plaintiff is not in a position to traverse the assertions made by the Defendant.  Hence, there is little factual dispute in this application. It is therefore incumbent on the Defendant to demonstrate from the Defence and the affirmation evidence he adduced that he has a good defence and the assertions he made are credible and able to bear out the Defence.

8. The defences relied on by the Defendant are two:  a defence of total failure of consideration and of conditional delivery. However, the assertions upon which the Defendant rely to support his defence are not directed against the Plaintiff.  Rather, all the allegations of impropriety were made against Yau and Lung.  Thus in order to make out a good defence, the Defendant would therefore be required to show that Yau/Lung were acting as agents of the Plaintiff at the relevant times of the transaction.  Thus, the factual issues of this case would be: whether Yau and Lung were acting as agents of the Plaintiff when the representation regarding the promise of persuading the Plaintiff to sell at or below the Market Price was allegedly made and that whether the Plaintiff was bound by a condition allegedly attached to the delivery of the Cheque.

9. In view of the close connection between the defences and the issue of whether the agents were the Plaintiff’s sole agents, it becomes necessary to briefly discuss the legal position regarding the role of an estate agent in property transactions.

Was Centaline a broker or the sole agent of the Plaintiff?

10. The issue whether an estate agent is a mere broker or an agent of either of the parties in the property transactions in Hong Kong is not easy to decide.  In this case, for the Defendant to be able to successful establish both of the defences, there is no need for him to show that Centaline was the sole agent of the Plaintiff during the entire property transaction. He is nonetheless required – as accepted by his counsel, Mr. Chong - to prove by credible evidence that Centaline was the agent of the Plaintiff at the relevant stages of the transaction in relation to the defences raised:

(1)  In respect of the defence of the total failure of consideration : during the time of the soliciting and communicating of the Defendant’s offer to the Plaintiff;

(2)  In respect of the defence of conditional delivery: during the stage of the Defendant’s giving of the Cheque to Lung and delivery of the Cheque to the Plaintiff.

11. Thus, it becomes necessary to examine each of the defences in the context of the role played by Centaline during the transaction.  On the issue of whether an agent is regarded as having a dual or sole role in property transactions in Hong Kong,  Mr. Chong referred to the case of Wong Jack Keung Victor v Wai Ping Luen DCCJ2539/2005 (19 December 2005, unreported) in which H.H. Judge Marlene Ng extensively discussed a number of Hong Kong cases.  The cases discussed by her included Cheng Kwok Fai v Mok Ying Wah  [1999]2HKLR440, Welltech Investment Ltd. V Easy Fair Industries Ltd  [1996]4HKC711, Green Park Properties Ltd v Dorku Ltd [2000]1HKLRD 400, Tai Sang Kung Ltd v Paraking Ltd & Ano.[2001]4HKC61 and Yili Concepts (HKG) Limited v Lee Wai Cheun & anor., HCA12911/1997Deputy Judge S. Kwan (as she then was) (29 September 2000, unreported).

12. Having reviewed the large number of authorities on this issue, H. H Judge Ng succinctly summarized the legal propositions.  I will set out below the pertinent propositions relevant to this application:

(1)  Centaline in this transaction was a party to the provisional sale agreement and a broker taking commissions from both parties.  The Plaintiff agreed to pay Centaline 2% commission and the Defendant the usual 1%.

(2)  An estate agent though acting as a broker for both the vendor and purchaser, he may assume different roles at different stages of the negotiation leading to a transaction.  Thus whether an estate agent is a dual agent or a sole agent of a particular party depends on the facts of each case.

13. With these undisputed propositions in mind, I now consider the Defence.

The Defence of failure of total failure of consideration

14. The total failure of consideration defence is based on the assertions by the Defendant that Yau and Lung were the agents of the Plaintiff when they allegedly made a representation regarding the prospect of securing a purchase price of the Property at or below the Market Price.  Thus, Mr. Chong did not dispute that for the purpose of showing a good defence in this limb of defence, the Defendant is required to establish by credible evidence that Yau and Lung were the agents of the Plaintiff when they allegedly misrepresented to the Defendant that the Property would be sold at or below the Market Price.

15. According to the Defendant’s Defence and Affirmation, the Property was among one of the six different properties viewed by the Defendant on the date of the signing of the provisional agreement on 29 May 2005.  There is little dispute that the Property was vacant and it was the Plaintiff who instructed Centaline to put the Property on market for sale by leaving the keys of the Property to the latter. Hence, at this stage, it is arguable that the agents were acting for the Plaintiff in introducing the Property to prospective purchasers.  However, the Defendant, after viewing the Property, expressed an interest in purchasing it and inquired from the said agents about the price of the Property. If they were still agents of the Plaintiff, they would, no doubt be able to immediately tell the Defendant the Plaintiff’s asking price for the Property.  Instead, they replied that they did not have information in hand but they were able to bargain with the Plaintiff to sell it at a price at or lower than the Market Price. What the agents had allegedly told the Defendant may or may not be true.  It is likely that it was an estate agent’s tactic in trying to broker a deal. What however is pertinent is that the said response is contradictory to the Defendant’s assertion that the agents at that stage were still the sole agents of the Plaintiff.  In my view, their role rapidly changed to that of brokers if not the agents of the Defendant. At the very least, it shows that when the most important issue of price was being discussed, neither Yau nor Lung had any authority or permission from the Plaintiff to sell the Property at a price range requested by the Defendant.  Had the agents had the authority, there would be no need to tell the Defendant that they had to persuade the Plaintiff to sell the Property at the said price range or even lower.  In fact, this lack of authority was corroborated by the Plaintiff evidence – his original asking price was $5 million and it was only lowered to $4.9 million shortly before the date of the signing of the Agreement.  Thus, the role of the agents immediately changed when the Defendant instructed the agents to bargain the best price for him. They became brokers if not the agents of the Defendant.

16. The lack of any authority from the Plaintiff regarding the representation of the Market Price is further supported by the evidence contained in the Defendant’s Affirmation.  In the Affirmation, the Defendant said that when he was asked by Lung to sign the blank standard form provisional agreement, he was emphatic that Mr. Lung had firmly promised him to bargain with the Plaintiff in order to get the price the Defendant wanted. In paragraph 6 of his Affirmation, he stated:

“ he would persuade the vendor to agree to sell the Property less than the said range ($4.5 million and $4.6 million) and further before the finalization and conclusion of the agreement, he would seek my (the Defendant’s) confirmation again on all the details.”(words in brackets are added)

17. From this evidence, it is clear that there is an understanding between Lung/Yau that they were to act in accordance with the Defendant’s instructions rather than the Plaintiff’s – which is quite contrary to the Defendant’s assertion that the said agents were the Plaintiff’s agents.   The requirement by the Defendant of the agents to notify him of the negotiation is self-explanatory of the fact that the Defendant turned himself to become the Principal of the agents. According to the following passage in Bowstead & Reynolds on Agency (17^th ed.) para.6-019 quoted by Mr. Chong, it becomes even clearer that the relationship between Yau/Lung and the Defendant tends to bear the characteristics of the Principal and agent.  The passage provides:

“An agent is, in general, under a duty to keep his principal informed about matters which are of his concern… An estate agent must notify his principals of offers received up to the time of exchange of contracts.”

18. Applying the principle elucidated in the said passage to the facts adduced by the Defendant, I must say that the Defendant is not able to produce credible evidence that the agents were the sole agent of the Plaintiff when the price was discussed between the Defendant and the agents.  The evidence tends to show rather the agents were likely the Defendant’s sole agent at that stage.

19. On the facts, I am unable to accept Mr. Chong’s submission that the Plaintiff had imputed knowledge that the Defendant offered to purchase the Property only at or below the Market Price.  The evidence does not bear this out.  There is no evidence at all that the Plaintiff in this transaction had given any of the agents an authority to represent to the Defendant the accepted price would be the Market Price.  In fact, according to the Plaintiff, the price he had instructed Centaline to sell the Property was $5 million and it was only lowered to $4.9 million shortly before the date of this transaction and the Plaintiff was only persuaded by another member staff of Centaline, Mr. Tam, to accept the offer of $4.7 million on 29 May 2005.

20. In the circumstances, I find that the Defendant is not able to show either a good defence or a triable issue in respect of his defence of total failure of consideration.

Defence of Conditional Delivery

21. It is trite law that a bill of exchange itself is a self-contained written contract of a promise to pay upon presentation. Thus, the law is against an admission of extrinsic evidence otherwise it would undermine the certainty and finality which ought to be attached to the drawer’s unconditional promise of the instrument. (See Chalmers and guest on Bills of Exchange, Cheques and Promissory Notes, (15^th ed.) Paras.384 and 385).  The exception to this rule is the existence of a collateral contract such as the existence of a condition precedent. 

22. The Defendant’s second limb of defence concerns with this very exception against the admission of extrinsic evidence. The evidence relied on by the Defendant is the existence of an oral promise by Lung/Yau that the Cheque would not be given to the Plaintiff unless they succeeded in persuading the Plaintiff to sell the Property at or below the Market Price.

23. The premises of the Defendant’s contention in this defence is that when he issued the Cheque, Lung/Yau had misrepresented to him that the Cheque would only be delivered to the Plaintiff if the Market Price could be achieved.  Hence, it is contended on behalf of the Defendant that when Lung received the Cheque, he did it on behalf of the Plaintiff as his agent, and this according to Mr. Chong, is sufficient to impute knowledge to the Plaintiff of the said promise (Bowstead & Reynolds on Agency, (ibid) Article 97(1), para 8-207).  Thus when the condition was not fulfilled, the Plaintiff is not entitled to be paid.

24. In order to determine if the Defendant has credible evidence to show that said agent was indeed the agent of the Plaintiff at the time the Cheque was given to him, it is necessary to consider the circumstances leading to the drawing and giving of the Cheque. According to both the Defence and the Defendant’s Affirmation, the Defendant agreed to draw the Cheque for the sum of $200,000 when Lung/Yau agreed to bargain for him and the Cheque was used to show “sincerity”.  In this context, it must be understood to mean that the Defendant’s was making a genuine offer. Thus, the purpose is really to bolster the chance of getting the Plaintiff to lower the price.  The evidence does not show that Lung was the agent of the Plaintiff when receiving the Cheque – he was asked to use the Cheque as a tool to obtain a price more favourable to the Defendant rather than to the Plaintiff. 

25. Further, according to the evidence, the Defendant said that on the same evening of 29 May 2005, after he found out from Yau that the transaction was concluded at $4.7 million rather than the targeted price, he had confronted her for not following his instruction.  This evidence when analysed in its proper context does not sit logically with a suggestion that the agent was in fact acting for the Plaintiff – in which case she would not be required to follow anybody’s instructions other than the Plaintiff’s – rather than for the Defendant. 

26. The Defendant further said that when he issued the Cheque, he had left the name of the payee blank with a view that the same cheque could be utilized by the agent to approach another vendor and make an offer if the Plaintiff was not able to be persuaded to lower the price he wanted.  Had the agent been indeed acting as the sole agent of the Plaintiff at the time the Cheque was delivered to Lung, the Cheque would have no doubt be required to be made payable to no one else but the Plaintiff – rather than being left open-ended and to be filled later when the deal was sealed.

27. The Defendant further contended that the fact that the Plaintiff had agreed to pay Centaline a higher percentage of commission is evidence of it being the Plaintiff’s agent.  I do not find there is any merit in this submission.  The reason for the higher than usual commission payable by the Plaintiff was explained and this does not go anywhere near of making Centaline the sole agent of the Plaintiff.

28. In essence, I find that the Defendant is unable to adduce any credible evidence to show that Yau/Lung were the Plaintiff’s agents when the Cheque was delivered by the Defendant to them.  Even if they were, there is also no evidence that they acted within the scope of the Plaintiff’s authority.  The alleged promise if made, does not bind the Plaintiff on the evidence.

29. Mr. Chong further submitted that in law, an estate agent receiving deposit money from a purchaser is assumed to have received it as agent for the vendor, citing Ojelay v Neosale Ltd [1987]2EGLR 167. The facts of this case were somewhat unusual in that the estate agent of the vendor who received the deposit defaulted in giving the money to the vendor.  The Court of Appeal in England found on the facts that the loss should fall on the vendor rather than on the purchaser as it was of the view that the person who receives the deposit does so as the vendors’ agent (See Ojelay, supra. at p.168). 

30. The facts in the present case however can clearly be distinguished.  First, in Ojelay (supra), there is no issue of whether the estate agent in question was the sole or dual agent.  The agent was the agent of the vendor.  In the Hong Kong conveyancing practice, the role of estate agent in Hong Kong as discussed above is quite different to that of in England. Most of the time the estate agents themselves are parties to the sale and purchase agreements as in this case and they are brokers rather than sole agents of one particular party.  Hence, unless the Defendant is able to adduce evidence that at the time when he handed over the Cheque to Lung, Lung was the sole agent, otherwise this presumption simply has no application.  As analyzed above, however, the Defendant has no evidence to show that is indeed the case.

31. Further, the form of contract in Ojelay (supra) contained a term with a specific provision that the deposit was “ Paid to Agents”.  In this case, there is no such an express term.  Rather, in this case, it is not disputed that the receipt of the Cheque was personally acknowledged by the Plaintiff and the deposit is clearly not paid to the agent.   The Cheque was therefore initially delivered to Lung as a bargaining tool and when the deal was sealed, for payment of the deposit. It is therefore totally different to the circumstances under which the deposit was paid in Ojelay (supra)

32. In the circumstances, I am unable to accept Mr. Chong’s submission that the presumption applies.  On the assumption that it did, I find there is sufficient evidence displacing this presumption.

ENTIRE CONTRACT CLAUSE

33. For the sake of completeness I ought to mention this particular issue I raised during the hearing regarding clause 13 of the provisional agreement.  As mentioned above, the provisional agreement is not admitted into evidence as it has not been stamped in accordance with the Stamp Duty Ordinance.  However, as both parties agree that the standard terms of the agreement were in fact the terms of the transaction, I found it necessary – in light of the issues raised in this case – to draw to the parties’ attention a provision in clause 13 which provides:

“This agreement supersedes all prior negotiations, representation, understanding and agreements of the parties hereto.”

34. I gave directions to both counsel to make further written submissions in relation to this clause.  The parties have no quarrel on the legal principle of the effect of this clause, which is commonly known as the “entire contract clause” – a clause used to make an express declaration of the parties’ agreement that the document is to contain all the terms of the agreement – is to preclude the admission of any extrinsic evidence to prove terms.   Similar to the prohibition regarding the admission of extrinsic evidence in relation to a bill of exchange as discussed above, which prohibition provides an exception for admission of evidence such as, inter alia, misrepresentation, this doctrine also provides for the same exception.   As misrepresentation is one of the issues raised in the Defence, plus the problem of the inadmissibility of the provisional agreement, I, having had the opportunity of considering the parties’ submissions, do not find it necessary in this application to give any further consideration to this term.

CONCLUSION

35. For the reasons aforesaid, I find that the Defendant has failed to show a good defence or that there are triable issues whether on the Defence or the affirmation evidence.  I further find that there is not any other reason to allow this matter to go to trial.  In the circumstances, I grant judgment in favour of the Plaintiff against the Defendant for the sum of HK$200,000.  I further order interest from the date of writ at judgment rate until full payment. I also grant a costs order nisi that the Defendant do pay the Plaintiff’s costs of this application and of the action, including all the costs reserved, if any, to be taxed if not agreed with certificate for counsel.