LIU CHUNG MAN v. MIDLAND REALTY INTERLATIONAL LTD

HCSA 42/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO 42 of 2015

(On appeal from Small Claims Tribunal Claim No 22422 of 2014)

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DECISION
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1.  This is an application for leave to appeal against a decision of the Small Claims Tribunal. The applicant, Mr Liu, was the claimant in the proceedings in the Tribunal. The defendant there was Midland, a real estate agency company.

2.  On 11 February 2014, the claimant, who wished to purchase a residential property, entered into an estate agency agreement with the defendant with respect to the property in question, being a flat in Choi Ming Court, Tseung Kwan O.  I shall refer to that estate agency agreement simply as “the agreement”.  The agreement was in a standard form prescribed by the Estate Agents Authority in accordance with Form 4 in the Schedule to the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation (Cap 511C) (“the Regulation”).  Two other properties were listed in schedule 1 to that agreement which were apparently later crossed out, but nothing in this application turns on that.

3.  The term in question is clause 5 of schedule 3 to the agreement, which provided:

“Subject to sections 2, 3 and 4 of this Schedule, the Purchaser is also liable to pay to the Agent as commission for services rendered with regard to the property concerned if the Purchaser or the spouse, or any nominee, undisclosed principal or agent of the Purchaser enters into a binding agreement for sale and purchase with the vendor of any one or more of the Properties during the Validity Period whether through the Agent or otherwise.”

The Validity Period was 3 months from 11 February 2014.

4.  On the evening of 11 February 2014, the claimant signed the agreement and then inspected the property in question together with an estate agent from the defendant, Ms Jiang.  The vendor’s asking price was $3.36 million.  There was some negotiation on the price with the vendor thereafter through the defendant, with the claimant offering $3.30 million and the vendor asking for $3.32 million, but they did not reach a deal through the defendant.  It was not in dispute that on 5 March 2014, unknown to the defendant, the claimant entered into a provisional sale and purchase agreement to purchase the property at the price of $3.21 million, and that he did so not through the defendant but through Centaline, another estate agent company, to whom the claimant paid a commission of $10,000. 

5.  Upon discovering that the claimant had purchased the property via another estate agent, the defendant demanded that the claimant pay $32,100 to the defendant as its commission pursuant to clause 5 of schedule 3 to the agreement.

6.  On 17 June 2014, although the claimant had not paid any commission to the defendant, he instituted proceedings in the Small Claims Tribunal claiming $32,100 as damages caused by the defendant’s breach of the agreement in failing to exercise due diligence.  In his form of claim, he contended that the defendant failed to make effort to get a better offer from the vendor and hence “chose to cease acting” for the claimant, rendering the agreement “void and null”.

7.  The defendant denied liability and counterclaimed commission in the sum of $32,100.

8.  At the trial in the Small Claims Tribunal, the claimant and his father gave evidence and Ms Jiang and her superior Mr Wong gave evidence for the defence.  On 28 April 2015, the adjudicator dismissed the claimant’s claim and gave judgment for the defendant on its counterclaim.

9.  The adjudicator found that Ms Jiang did explain the important terms of the agreement to the claimant, that the claimant was aware of the provision for payment of 1% of the purchase price as commission to the defendant if the claimant purchased the property through another estate agent within the Validity Period, and that Ms Jiang did ask whether the claimant understood the terms of the agreement and whether he had any question.  As regards the defendant’s performance, the adjudicator found that Ms Jiang did convey each of the claimant’s counter-offers to the vendor and did not fail to take steps to procure a meeting with the vendor as alleged by the claimant’s father.  The adjudicator further found that when the claimant decided to purchase the property through Centaline, both the claimant and his father knew that the defendant might well seek payment of commission pursuant to the agreement.  That was why the claimant managed to reduce Centaline’s commission to $10,000 and to secure Centaline’s agreement that if the claimant was successfully sued by the defendant for commission, the claimant would not have to pay the sum of $10,000 to Centaline.

10.  From this decision the claimant now applies for leave to appeal.  The grounds for the applicant’s application for leave to appeal have been set out in detail in English in the attachment to his application filed on 22 July 2015 as supplemented by a document called “Supplemental Reasons in support of Application for Leave to Appeal” dated 20 August 2015.  The principal grounds of the application may be set out as follows:

(1) The claimant submits that the adjudicator failed to take a fair view of the evidence adduced in the trial. He contends that the evidence of the defendant’s witnesses was unreliable whilst that of the claimant’s witnesses was reliable.

(2) The claimant submits that Ms Jiang has, in breach of s. 6 of the Regulation, failed to explain to him all the terms of the agreement.  The agreement was therefore not properly executed and not binding on the claimant.

(3) The claimant contends that the defendant was in serious breach of its duties under the agreement and as such was not entitled to be paid any commission.

I shall deal with these grounds in turn below.

Challenge against the adjudicator’s findings of fact

11.  S. 28 of the Small Claims Tribunal provides:

“(1) Any party who is aggrieved by a decision of the tribunal-

(a) on any ground involving a question of law alone; or

(b) on the ground that the claim was outside the jurisdiction of the tribunal,

may apply to the Court of First Instance for leave to appeal and the Court of First Instance may grant such leave if it thinks fit.”

12.  Since the scope of appeal from the Small Claims Tribunal to this court is limited to questions of law, the claimant cannot seek leave to appeal against the adjudicator’s findings of fact or decisions on the credibility of witnesses merely by contending that the adjudicator was wrong, for that would be to allege no more than an error of fact.  He has to make out a ground that raises a question of law or alleges an error of law.  There are certain established but limited bases on which a finding of fact may yet be vitiated by a legal error.  Thus a decision of fact can be quashed for error of law if it is perverse or irrational, or if there was no evidence to support it.  In Kwong Mile Services Ltd v Commissioner of Inland Revenue (2004) 7 HKCFAR 275, Bokhary PJ, having reviewed various authorities and in particular Edwards v Bairstow [1956] AC 14, stated at §37:

“In an appeal on law only the appellate court must bear in mind what scope the circumstances provide for reasonable minds to differ as to the conclusion to be drawn from the primary facts found. If the fact-finding tribunal’s conclusion is a reasonable one, the appellate court cannot disturb that conclusion even if its own preference is for a contrary conclusion. But if the appellate court regards the contrary conclusion as the true and only reasonable one, the appellate court is duty-bound to substitute the contrary conclusion for the one reached by the fact-finding tribunal. The correct approach for the appellate court is composed essentially of the foregoing three propositions. …”

13.  This approach has been applied in relation to appeals from the Small Claims Tribunal to the Court of First Instance under s. 28: Potential Optical Media Ltd v Upplan Holdings Ltd [2008] 2 HKLCRT 184 §11; Chow Mee Yee Millie v Hong Kong Mediation Services Limited (unreported, HCSA 17/2011, 16 February 2012) at §25.  I shall apply the same approach to examine if the errors alleged by the claimant raise any question of law.

14.  The claimant submitted that Ms Jiang and Mr Wong had stated in writing that Ms Jiang had explained every term of the agreement to the claimant but admitted at trial that she only explained some of the terms of the agreement to the claimant.  The claimant submitted that their failure to explain all the terms and the inconsistency in their evidence demonstrate that they were not reliable witnesses.  In my view this argument does not raise any question of law.  The adjudicator concluded that Ms Jiang did explain the important terms to the claimant including clause 5 of schedule 3.  This finding was based on the oral evidence of the defendant’s witnesses.  The claimant submitted that Ms Jiang had simply read out the terms in question without explaining.  But even if that was so, once the terms had been read to the claimant, and as ascertained by Ms Jiang he understood the effect of them (which the adjudicator also found, as to which there is no challenge), it is not clear to me what further explanation would be material.

15.  The claimant also submitted that Ms Jiang failed to update her old file on the property and made errors about the existence of charges on the property, and submitted that she was not a professional and honest agent.  In my view this does not raise any question of law either.  The adjudicator saw and heard the witnesses and assessed their credibility and the evidence they gave.  It seems to me entirely open to her on the materials available to accept the evidence of Ms Jiang on conflicting questions of fact.

16.  The claimant submitted that it would only take an ordinary adult 12 minutes to walk from the defendant’s branch office to the building where the property was located, and there could not have been enough time for Ms Jiang to give a detailed explanation of all the terms and conditions of the agreement.  As the adjudicator found, Ms Jiang explained the important terms to the claimant, not necessarily every term.  The term that was relevant in this dispute is clause 5 of schedule 3, whose effect was understood by the claimant.  In these circumstances I fail to see any question of law raised by the claimant’s argument.

Breach of s. 6 of the Regulation

17.  The claimant submitted that the agreement was not binding on the claimant as a result of the defendant’s breaches of s. 6 of the Regulation. The claimant submitted that, by virtue of s. 45 of the Estate Agents Ordinance (Cap. 511) (“the Ordinance”), the agreement had not been properly executed.

18.  S. 6 of the Regulation provides:

“(2) A licensed estate agent who acts for a purchaser shall enter into an estate agency agreement with the purchaser prior to-

(a) arranging an inspection of the residential property concerned by the purchaser; or

(b) signing an agreement for sale and purchase or a lease of the property,

whichever is the earlier.

(3) A licensee shall, before a person who is not legally represented enters into an estate agency agreement in relation to a residential property-

(a) explain to the person the different types of agency appointment in the agreement and their respective implications and effects on the person;

(b) explain to the person every term and condition set out in the agreement to ensure that the person is made aware of his rights and obligations under the agreement; and

(c) recommend that the person seek legal advice if the person does not understand any part of the explanation given under paragraph (a) or (b).”

19.  The claimant submitted that, by failing to explain “every term and condition” of the agreement to the claimant, the defendant had breached s. 6(3)(b) of the Regulation.  He was however unable to point to any authority in statute or case law in support of his proposition that a breach of that regulation would result in the estate agency agreement being void or unenforceable.

20.  Reference was made by the claimant to ss. 45 to 47 of the Ordinance.  The effect of s. 45 of the Ordinance is that where an estate agent has undertaken estate agency work for a client, the agent does not have any right of action unless an agency agreement in the prescribed formcontaining the prescribed particulars has been entered into and, in the case of a written document, “properly executed”.  Sections 47 and 48 require a copy of the agreement to be supplied and sections 47(3) and 48(3) provide:

“For the purposes of section 45, an estate agency agreement is not properly executed if the requirements of this section are not complied with.”

21.  There is no provision in the Ordinance, however, to the effect that if the agent fails to explain “every term and condition” of the agreement to the client, the agreement is automatically to be treated for that reason as not having been “properly executed” for the purposes of section 45.  If that had been intended by the legislature, surely express provision would have been made along the lines of sections 47(3) and 48(3).  As Judge Leung pointed out in Centaline Property Agency Ltd v Yip Yuk Fai (DCCJ 5321/2009; 18 August 2011):

“106. Section 56(3) of the [Estate Agents Ordinance] provides that any regulation made under this section or any other provision of this Ordinance may create offences in respect of contravention of any of the regulations and may provide for the imposition of a fine and imprisonment as well as specify defences that may be raised for such an offence.

107. There is no provision in the [Estate Agents Ordinance] or [Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulations] to deprive the licensed estate agent of commission payable under contract on the ground of non-compliance.”

22.  In principle, I do not see why a failure by the agent to explain every term of the agreement should render the agreement wholly unenforceable by the agent irrespective of whether the specific term in question had been explained and whether the client in fact understood that term. For present purposes, I leave aside the case where the agent is seeking to enforce the term which it has failed to explain and of which the client was not aware.  Here, the adjudicator specifically found (see §6 of her Reasons for Decision) that the claimant knew and agreed to clause 5 of schedule 3 to the agreement.  In my view the claimant’s contention has no merit.  Accordingly I reject the claimant’s submission.  I do not think this ground has any reasonable prospect of success.

Alleged breach of duty by the defendant

23.  Finally, the claimant submitted that the defendant had failed to discharge its duty of care and diligence.  The claimant relied on the following passage from the decision of Deputy Judge To (as he then was) in Centaline Property Agency Ltd v Lai Yuk Chun [2002] 2 HKLRD 241 at §49:

“The true position is that where an agent is in serious breach of his duty to his principal, the principal can refuse to pay commission in respect of the transaction as to which the agent is in breach. This is well established in Salomons v Pender (1865) H & C 639. The breach does not have to go, as Mr Yin submits, to the whole of the contract thereby rendering the work done useless. So long as the breach is serious, or goes to the root of the contract, or otherwise justify the principal’s repudiation of the liability to pay, the principal is excused from paying commission. Whether the breach is of such a character is a question of fact for the Court. Usually, where the breach is repudiatory, or goes to the root of the contract, or render the performance of the contract wholly different from what was anticipated, or, as Mr Yin submits, goes to the whole of the contract, it falls within the serious breach category. But breaches short of such severity may also disqualify the agent from his right to commission. An agency contract is built on good faith and fidelity. If the performance of the contract involves a destruction of this substratum, it is also a repudiation by the agent of his contract of agency and the principal is discharged of the obligation to pay commission. Dishonesty and taking secret profit, purchasing the principal’s property without proper disclosure, taking bribe and failure to disclose material facts are common examples of such repudiation.”

24.  The question here is whether there had been a breach that was serious, or went to the root of the contract, or otherwise justified the claimant’s repudiation of the liability to pay commission.  As the learned judge said in the above passage, whether the breach alleged is of such a character is a question of fact. 

25.  In paragraphs 10 and 11 of her Reasons for Decision, the adjudicator rejected the allegation that Ms Jiang failed to negotiate the price with the vendor and the allegation that Ms Jiang failed to procure an appointment with the vendor.  The adjudicator had regard to the print-out of the “WhatsApp” communications between the parties and evaluated the witnesses’ evidence in coming to her conclusion.  I am unable to detect any error of law in these findings.

26.  As to the matters referred to in paragraph 27.3 of the claimant’s Reasons of Application for Leave to Appeal, whether or not the defendant was guilty of professional negligence or failed to perform its duty with care and skill is again primarily a question of fact.  The adjudicator held that there was no such misfeasance as would vitiate the agreement (see §13 of her Reasons for Decision).  In particular:

(1) The claimant complained that Ms Jiang was not in possession of any updated land search record when the claimant was asked to sign the agreement.  The parties were entering into a contract at that stage.  The claimant has not been able to point to any duty on the defendant to provide an updated land search record at that point in time.  The adjudicator found (see §8 of her Reasons for Decision) that the claimant had obtained from other persons in the defendant an up-to-date land search record soon after the first inspection of the property.

(2) The adjudicator also found that Ms Jiang had asked the vendor about repayment of loans and consulted solicitors known to the defendant on the documents obtained (see §8 of her Reasons for Decision).

(3) The claimant complained that Ms Jiang failed to explain to him his right to get relevant property information and instead ticked the box in the form for him to waive such right.  The adjudicator found at §§4 and 6 of her decision that the claimant knew clearly the terms he had agreed to.  I do not think there was any serious breach of professional duty in this regard.

27.  Accordingly, for the above reasons, the application for leave to appeal is dismissed.