RICHARD ELLIS v. TAI SANG CONTAINER COLD STORAGE & WHARF LTD.

1985, No. A5445

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

___________

JUDGMENT

___________

1. Dah Luen Investment Co. Ltd. (Dah Luen) has at all material times been the owner of the Tai Sang Container and Godown Centre "the Centre" on Tsing Yi Island. That building is a twenty-two storey warehouse with hoists for carrying containers as far as the 17th floor.

2. Although the building had been fully erected by July 1984, the whole space did not become available for occupation until the 28th March 1985. The space became available in phases. Phase I, comprising the ground floor, 1st and 2nd floors, received its occupation permit as early as the 10th December 1979. Phase II, comprising the 3rd floor to the 10th floor, first got a temporary occupation permit on the 22nd April 1982. It can be noted at this point that the 10th floor is merely a fire refuge. Once the 3rd to the 9th floors got their temporary occupation permit, they were put into use for warehousing purposes.

3. It was not until the 28th March 1985 that the 3rd to the 10th floors received their permanent occupation permit. That same permanent occupation permit also extended to the 11th to 22nd floors with the result that from the 28th March 1935 the 11th to 22nd floors became useable for the first time. The 11th to 22nd floors comprised Phase III of this building.

4. Leases of the 14th and 15th floors of Centre were granted by Dah Luen to Esprit de Corp (far East) Ltd. ("Esprit") on the 11th June 1985. Like all the floors between the 3rd and the 17th floors, the 14th and 15th floors each comprised 58,480 sq.ft. Dah Luen granted Esprit a separate lease for each of those two floors. The leases, in identical terms apart from the descriptions of the floors, were each for two years from the 16th July 1985 at a monthly rent of HK$87,700 per floor. That works out, I am told, HK$1.50 per sq. ft.

5. The defendant company, Tai Sang Container Cold Storage & Wharf Ltd., is a sister company of Dah Luen. Each of them is a wholly owned subsidiary of Tai Sang Land Development Ltd.

6. Richard Ellis, the plaintiff firm in the present proceedings, are international property consultants and estate agents with a branch in Hong Kong.

7. Richard Ellis claims in the present proceedings that, as the result of the two leases entered into by Esprit, the defendant company has become liable to pay Richard Ellis commission. The amount of commission claimed is one month's rent, namely $87,700 for each floor, making a total of $175,400.

8. The defendant company does not dispute the rate of commission. It does, however, dispute that it is the appropriate party to sue in respect of commission on this transaction, and further contends that in any event, the activities of Richard Ellis were not the effective cause of Esprit taking the leases from Dah Luen with the result that Richard Ellis has not earned any commission.

9. A convenient starting point in the history of this matter is the phone conversation in July 1984 between Mr. Nourse a chartered surveyor who managed the Kowloon office of Richard Ellis, and Mr. Lo who was the Assistant Manager of the defendant company. At the time of that phone conversation, the occupation permit, as I have already indicated, did not extend beyond the 10th floor of the Centre, although the upper floors were already built.

10. The defendant company had been granted a one year lease of the ground floor to the 9th floor by Dah Luen or 1st January 1984. When that lease expired, Dah Luen purported to extend it by a letter dated 2nd January 1935. The defendant company used that space for warehousing goods and licensing space to others.

11. I am satisfied that when, Mr. Lo had that telephone conversation with Mr. Nourse in July 1984, Mr. Lo did not identify himself as the Assistant Manager of the defendant company. Instead, Mr. Lo held himself out to be an employee of Tai Sang Estate Agency Ltd., which is another wholly owned subsidiary of Tai Sang Land Development Ltd., and - hence a sister company of the defendant company. In holding himself out as an employee of Tai Sang Estate Agency Ltd., Mr. Lo led Richard Ellis to believe that at Mr. Lo represented the owner of the Centre.

12. Mr. Lo ask the Court to believe that he always made clear to Mr. Nourse that he merely represented the defendant company which was no more than the lessee of the ground floor to the 9th floor, and that he had nothing to do with any of the floors above the 9th floor.

13. I disbelieved Mr. Lo's evidence where it conflicted with Mr. Nourse's evidence. There was also evidence from Mr. Nourse's assistant, Mr. Yeung, who supported Mr. Nourse's version. I was satisfied. Mr. Yeung was a witness of truth. Beside my impression of witnesses, there was correspondence (in particular, letters dated the 25th October 1984, 5th March 1985 and 7th March 1985), as well as inherent probability, to support the version put forward by Richard Ellis.

14. In that phone conversation between Mr. Nourse and Mr. Lo in July 1984, Mr. Lo requested Richard Ellis to look for tenants for the unoccupied space in the Centre at a rent of $1.90 per square foot. Mr. Lo's request extended to the whole of the building. The position with regard to the 11th floor upwards was explained by Mr. Lo to Mr. Nourse: the occupation permit for those upper floors was expected in November 1984.

15. It so happened in October 1984 that Esprit decided it needed more godown space. At that time, Esprit was having to manage with only 28,000 ft. of godown space. Its executive manageress, Miss Kwan, took the view that her company needed twice that space. Miss Kwan contacted her subordinate, Mr. Hau, who was in charge on the operations side for Esprit's godown space. She instructed him to try to locate suitable godown space for renting by Esprit in either the Kwai Chung area (which is near Tsing Yi Island) or at Kwun Tong.

16. Mr. Hau got in contact with Mr. Nourse by telephone, explaining Esprit's requirements. As Mr. Hau explained the position to Mr. Nourse, Esprit were looking for approximately 40,000 sq. ft. of warehousing space. Mr. Nourse wrote to Mr. Hau on 25th October 1984 offering a choice of nine different warehouse buildings from the clients of Richard Ellis. One of those nine choices was the Centre, It was explain by Mr. Nourse in his letter that the occupation permit was expected towards the end of the year and the asking rent was $1.90 per sq. ft.

17. As usually happens between estate agents and potential tenants, there was much liaising on the telephone between Mr. Hau and Richard Ellis At first, the main telephone contact was between Mr. Hau and Mr. Nourse himself, but after Mr. Yeung joined Richard Ellis in November 1984, Mr Yeung took over dealing with Mr. Hau.

18. Mr. Yeung took Mr. Hau on inspections of various properties, including the warehouse of Modern Terminals Ltd. at Kwai Chung near Tsing Yi Island. However, Mr. Yeung never took Mr. Hau to see the Centre.

19. Despite the efforts of Mr. Hau and Mr. Yeung, Esprit still had not found suitable new warehouse space by the end of February 1985. Miss Kwan was unenthusiastic at the idea of even considering any place on Tsing Yi Island because of the notorious traffic congestion on the bridge linking that island with the mainland.

20. Not having found any suitable space by the end of February 1985, Esprit were starting to become a little desperate. Mr. Yeung was then able to get Mr. Hau at least sufficiently interested in the Centre to ask for a brochure about those premises.

21. Once Esprit manifested sufficient interest in the Centre to the extent of at least wanting to see a brochure, Richard Ellis decided to protect its position with regard to commission by asking Mr. Lo for an agreement in writing on that subject. That resulted in a letter dated the 5th March 1985 from Richard Ellis to the defendant company. Mr. Lo added an annotation to that letter. I now set out that letter including the annotation :-

That letter was signed on behalf of Richard Ellis by Mr. Nourse and on behalf of the defendant company by Mr. Lo.

22. The reason Richard Ellis addressed that letter to the defendant company rather than any of the other subsidiaries of Tai Sang-Land Development Ltd. was that Mr. Lo had requested Richard Ellis to make the defendant company the addressee. In the past, some of the correspondence of Richard Ellis with Mr. Lo in relation to space in the Centre had been with Tai Sang Land Development Ltd., while other correspondence had been with the defendant company. Mr. Lo had given Richard Ellis no cause to believe that there was anything significant in corresponding with one company rather than another in the same-group. He held himself out as representing whichever company was entitled to let out space in the Centre.

23. After Mr. Lo signed the letter of Richard Ellis dated 5th March 1985, Mr. Yeung sent Mr. Hau a letter dated 7th March 1985, enclosing a copy of a brochure of the Centre. That letter explained that space was available from the 11th floor to the 17th floor at a rent of $2 per-sq. ft. per month. Although the occupation permit hat not yet been issued then, Richard Ellis knew from Mr. Lo it was imminent, the actual date of its issue being 28th March 1985.

24. That letter of the 7th March 1985 was followed up by a telephone call from Mr. Yeung to Mr. Hau a few days later, enquiring whether Mr. Hau would like to be taken on an inspection of the Centre. Mr. Hau declined, but went on to explain that he expected to be in the Tsing Yi area within the following few days when he would take the opportunity of visiting the Centre. And Mr. Hau did, in fact, visit that Centre, as he had said he would.

25. Unfortunately, Mr. Hau did not give evidence in the case before me. There was the evidence of Mr. Tong, who was in charge of day-to-day operations for the defendant company at the Centre that, apart from the ground floor, Mr. Hau was shown only the 9th floor both on his original visit, and on subsequent visits he made. I have serious doubt about whether Mr. Tong was telling the truth when he tried to make out that Mr. Hau concerned himself principally with the 9th floor, but nothing really turns on that, apart from the general credibility of the defence case. At the end of the day, the impression I got was that Mr. Tong, like Mr. Lo, was trying to mislead the Court into believing that Esprit's interest in The Centre, stemming from the introduction of Richard Ellis, was confined to the 9th floor.

26. What Mr. Hau discovered as the result of his visits to the Centre by no means met with his approval. In particular, he deplored the lack of public transport facilities and refreshment places for workers.

27. He reported back to his superior, Miss Kwan. She decided that Esprit was not interested in the Centre because of the Traffic congestion problem on The Tsing Yi bridge.

28. When Mr. Hau spoke to Mr. Yeung over the telephone about the former's impression arising from his visit to the Centre, he explained, in effect, that Esprit was not interested in renting accommodation there for the time being because of the poor public transport and refreshment facilities, but would, nonetheless, include the Centre on its reserve list of places to be kept in mind.

29. When Mr. Young passed on to Mr. Lo the observations of Mr. Hau about the lack of public transport and refreshment amenities, Mr. Lo asked Mr. Yeung to try and arrange a meeting with Mr. Hau for the purpose of trying to devise a satisfactory solution to those worries of Mr. Hau. Mr. Yeung's endeavours to set up such a meeting bore no fruit as Mr. Hau told Mr. Yeung there was no point in such a meeting since Esprit was not interested in the Centre.

30. As Mr. Hau still kept hope alive by including the Centre on his reserve list of properties, Mr. Yeung continued to canvas Mr. Hau about it by phone from time to time on the off chance that Esprit might come round to considering it. Mr. Hau showed no further interest in the Centre to Mr. Yeung, because Mr. Hau's superior, Miss Kwan, had indicated to him she was not interested in Tsing Yi because of the traffic congestion.

31. Towards the end of April, Esprit was becoming so desperate about its failure to find suitable warehouse space that it placed advertisements in local newspapers, seeking suitable accommodation. On the 24th April 1985, which was at about the same time as Esprit's advertisement, here was also an advertisement in the local papers for phase III of the Centre. (See plaintiff's bundle at p.74) That was one of several advertisements for warehouse space available at Tsing Yi Island which Miss Kwan noticed.

32. Long before - in about January 1985 - Miss Kwan had been to inspect warehouse space offered by Modern Terminals Ltd. at Kwai Chung. That visit had been arranged through Richard Ellis. At the end of April 1985, she decided to take a second look at the Modern Terminals Ltd.'s accommodation. To accompany her on this second visit to Modern Terminals Ltd., she took along her superior, Mr. Ying, and her subordinate, Mr. Hau. They met Mr. Yeung at the Modern Terminals Ltd.'s building at Kwai Chung.

33. After completing this second inspection of the Modern Terminals Ltd.'s building, Miss Kwan decided that she might as well take advantage of Mr. Ying's presence, which was not easy to arrange, by suggesting that he might go with her to visit other buildings in the Kwai Chung area.

34. Close by Kwai Chung is Tsing Yi Island, joined by the bridge. As I have indicated, Miss Kwan had seen several newspaper advertisements for warehouse accommodation on Tsing Yi Island. When she mentioned visiting other warehouses in the Kwai Clung area, Mr. Hau suggested that the place they should visit was the Centre. Miss Kwan was agreeable to that.

35. Why, of all the warehouses being advertised on Tsing Yi island, should Mr. Hau suggest to Miss Kwan that they should visit the Centre? The common sense answer, in my opinion, is he suggested Esprit should go there because he had been sufficiently impressed by that Centre when he had visited it earlier as the result of the introduction made for him by Richard Ellis. He had had the opportunity of seeing the quality of the physical accommodation, and knew that the owners were amenable to negotiation on problems such as public transport and refreshment facilities for workers. The spadework of Mr. Nourse and Mr. Yeung for Richard Ellis was beginning to pay off. They had managed to get Mr. Hau interested in the property, had persuaded him to visit it, and to at least include it on his reserve list. They had made Mr. Hau aware that the landlords of the Centre wanted to sit down and parley on matters causing concern to a potential tenant. That is why, when there were several properties beckoning on Tsing Yi Island, Mr. Hau steered Miss Kwan towards the Centre.

36. The group from Esprit did not, however, want Mr. Yeung or anyone else from Richard Ellis to accompany them on their visit to the Centre. Mr. Yeung wanted to accompany them, but they refused his offer. I do not think there is anything particularly significant in that, and their unwillingness to take Mr. Yeung along with them would in no way preclude Richard Ellis from earning its commission if that firm was the effective cause of space in the Centre being let to Esprit. I think there might well have been rather mundane considerations which influenced the Esprit party not taking Mr. Yeung along with them. It was getting close to lunch and the Esprit people might not have wanted his company on that occasion.

37. Once at the Centre, Mr. Ying of Esprit became aware that he knew the Ma family which owns the defendant company, its parent, and the associated companies. While at the Centre, the party from Esprit visited the vacant 14th and 15th floor, and very much liked what they saw.

38. When Miss Kwan got back to her office, she followed the instructions of her superior, Mr. Ying by phoning Mr. Ying's acquaintance, Mr. Patrick Ma who runs the banking arm of the Tai Sang group of companies. She told Mr. Patrick Ma she was phoning about Esprit renting accommodation in the Centre. Mr. Patrick Ma phoned his brother, William Ma, who is the chairman of the parent company of the defendant company. I have little doubt that Miss Kwan would have told Mr. Patrick Ma that her company wished to rent the 14th and 15th floors, and Mr. Patrick Ma would have communicated that to his brother William. There was no direct evidence as to what Mr. Patrick Ma told his brother, but as a matter of common sense I think it highly likely that William Ma would have learned from Patrick Ma who would have learned from Miss Kwan that Esprit wanted to rent the 14th and 15th floors.

39. Mr. William Ma called in Mr. Lo to conduct negotiations with Miss Kwan. Why Mr. William Ma should have selected Mr. Lo for this task took a lot of explaining on Mr. Lo's part. Mr. Lo was anxious to present himself to the Court as concerned solely with the management of the defendant company which, according to him, was only interested up to the 9th floor of the Centre. Feebly, he suggested that perhaps, Mr. William Ma thought that Esprit might be interested in storing some goods with the defendant company. The possibility of Mr. William Ma having thought that is farfetched in my opinion. A far more likely explanation, in my view, is that no strict division of function exists amongst the employees of the various companies in Mr. William Ma's group in relation to matters affecting the Centre. Because Mr. Lo had been involved since October 1984 in trying to secure Esprit as a tenant for any part of the Centre, Mr. William Ma decided to make continuing use of his services to try to clinch a lease.

40. As indicated near the beginning of this judgment, Esprit ultimately took leases of two of the floors from Dah Luen, the owners of the Centre, for two years at a rent of HK$1.50 per sq. ft., each floor comprising 58,480 sq. ft.

41. If Dah Luen are the owners, how can the defendant company be treated as the party liable to pay commission? The answer is that the defendant company, through Mr. Lo, held itself out to Richard Ellis as having the power to grant leases over space anywhere in the Centre. In terms of the letter dated the 5th March 1985, the defendant company agreed I "will pay your commission equal to one month's rent for a lease of two yeas or more on completion of a transaction". A transaction has been completed, as contemplated by that letter, so that the defendant company must now make good on its promise by paying the commission.

42. That conclusion presupposes that the introduction of Esprit by Richard Ellis was the effective cause of that transaction. Elsewhere in this judgment, I have already described the line of reasoning which has led me to the conclusion that the introduction of Mr. Hau of Esprit to the Centre by Richard Ellis was the effective cause of Esprit taking the leases. Obviously, there have been many cases where estate agents have done much more than Richard Ellis did in the present case to earn its commission. The present is, to my mind, a borderline case of an estate agent being the effective cause of the conclusion of a transaction. Whether Richard Ellis was the effective cause of Esprit taking the leases is a question of fact; other decided cases involving entirely different factual situations are of no real assistance is answering the question in the instant case.

43. The onus was on Richard Ellis to prove that it was the effective cause of the transaction, and I am satisfied that it has done that. For the defence, it was argued that the chain of causation was broken when Miss Kwan decided that Esprit was not interested in the Centre on receiving Mr. Hau's report about its location, or when she felt driven to place Esprit's own advertisement in a newspaper for possible accommodation. After anxious consideration, I am satisfied that neither of those events interrupted the chain of causation. An unbroken chain of causation can be discerned by concentrating on the person of Mr. Hau, at whom Richard Ellis directed its main energies when trying to secure Esprit as a tenant for the Centre. In particular, it was the work of Mr. Yeung on Mr. Hau which can be seen to have got this tenant for the Centre.

44. Two further points put forward by way of defence called for brief mention. One was that by virtue of Mr. Lo's annotation on the letter of 5th March 1985, Richard Ellis would only earn commission if space were let at HK$2.00 per sq. ft. but not if the rent were lower. There can be a situation where the terms of a contract are such that an agent will only earn his commission if a transaction is concluded at a specified price,(see, for example, Howard Houlder & partners Limited v. Manx Isles Steamship, Company Limited (1923) 1KB 110), but I think it would fly in the face of commercial reality to treat the figure of HK$2.00 per sq. ft. as other than a negotiating price in the present instance. In the context of renting warehouse space generally in Hong Kong and of the defendant company as a landlord in particular, with a history of reducing the initial asking price of rent, as shown on the letting of 1 Queen's Road Central Limited in September 1984, there was a clear implication that Richard Ellis would still be entitled to earn its commission in the event of Esprit concluding a transaction at a lesser rent than HK$2.00 per sq.ft.

45. The second point was whether Richard Ellis was entitled to EARN commission, if Esprit took more than 50,000 sq. ft. of space. The letter of 5th March 1985 between the parties referred to Esprit looking for around 50,000 sq.ft. Because Esprit has finished up taking over twice that area, the defendant company - somewhat churlishly, in my view - now seeks to argue that the transaction is outside the contemplation of the letter of 5th March 1985. This impudent argument, if correct, would mean that the more successful estate agents were in off-loading their clients' space, the less likely they would be to earn commission. This cannot be right. To give business efficacy to contracts between estate agents and their clients, there must surely be an implied term that if the estate agent introduces a client who decides to take more space than originally envisaged, the client will be liable to pay commission on the space in fact taken. Perhaps, of course, there could be a situation where a difference in degree became a difference in kind, For example, if the estate agent were asked to find a tenant for a broom cupboard but the client finished up letting the whole building as the result of the estate agent's introduction, then may be the estate agent might have difficulty in arguing for his commission, though not necessarily so. However, where, as here, only twice as much space as originally hoped for gets let, I do not think that the estate agent has any difficulty in establishing his right to commission based on the whole amount let.

46. In view of the foregoing, I am satisfied that Richard Ellis has proved its claim against the defendant company; with the result that I enter judgment for Richard Ellis in the sum of $175,400.