CENTALINE PROPERTY AGENCY LTD v. SUNTON LTD AND ANOTHER

HCSA 3/2021

[2021] HKCFI 1066

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO 3 OF 2021

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL

CLAIM NO 45005 OF 2018)

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JUDGMENT

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1.  By her decision on 28 December 2020, Deputy Adjudicator Jane TC Ho of the Small Claims Tribunal (“Adjudicator”) made an award in favour of the claimant (“C”) after a trial de novo ordered by Keith Yeung J in HCSA 31/2019. Pursuant to her decision, the Adjudicator ordered that the defendants (respectively referred to as “D1” and “D2” and collectively “Ds”) to jointly and severally pay a sum of HKD 40,000 to C, plus costs of HKD 10,742, and interests.

2.  On 26 January 2021, Ds filed a Form 9 for leave to appeal against the Adjudicator’s decision and award (“Form 9”).

3.  On 16 February 2021, the Adjudicator handed down detailed reasons for her award (“Reasons”).

4.  Ds’ leave application was fixed for a hearing before this Court on 9 March 2021.  Mr Leonard Chow, Counsel for Ds, appeared at the hearing.  As Mr Chow did not seem to be aware of the handing down of the Reasons on 16 February 2021, this Court gave leave to Ds to file further submissions and directed the matter be dealt with on paper.

5.  As the proceedings before the Adjudicator were conducted in Chinese, the Reasons were also written in the Chinese language.  However, as Ds are now represented, and Mr Chow had addressed the Court in English and his submissions were in English, this judgment will be handed down in English.

Background 

6.  C is a firm of estate agents.  D1 is a limited company and D2 is the only shareholder and director of D1.

7.  On 29 December 2012, under the arrangement of a Ms Stella Zheng of C (“Ms Zheng”) and for the purpose of renting, D2 and his wife inspected 3 properties that day including a property at Flat B 3^rd floor, Block 2, Meridian on Broadcast Drive with a car park (“Property”).  At that time, the Property had an existing tenant who had not yet moved out.  On 29 December 2012, D2 on behalf of D1 and C signed an estate agency agreement in the standard Form 6 (“EAA”) and the validity period was from 29 December 2012 to 29 March 2013.  Pursuant to the EAA, D1 agreed to pay 50% of the commission charged by C.  A further EAA was again signed by C and D1 on 31 December 2012 with validity period from 31 December 2012 to 29 March 2013.  Schedule 3 of the EAA set out the commission to be paid by the tenant and Clause 1 thereof provided that if D1 entered into a binding tenancy agreement with a landlord through C within the validity period, D1 had to pay the commission at the commencement of the tenancy term stipulated in the tenancy agreement.

8.  On the same day , 31 December 2012, a preliminary tenancy agreement in C’s standard form (“PTA”) was signed between D1 as tenant, D2 as guarantor, Ms Wang Xun (registered owner of the Property) (“Landlord”) and C in respect of the Property[1]. C was the estate agent acting as the dual agent for both D1 and the Landlord and as Ms Zheng was otherwise engaged on 31 December 2012, it was Mr Peter Ho (“Mr Ho”) who had signed the PTA on behalf of C.

9.  The monthly rent was HKD 40,000 and the tenancy was for two years commencing from 10 February 2012 and that the tenant was entitled to a rent free period of 9 days from 1 February 2013 to 9 February 2013.  According to Clause 2 of the PTA, the parties were to sign a formal tenancy agreement on or before 31 January 2013 (“Formal Agreement”).

10.  The rental deposit was HKD 80,000 (“Rental Deposit”).  At the time of signing the PTA, D1 had paid to the Landlord, as part of the Rental Deposit, HKD 40,000.  Clause 6 of the PTA provided that (i) the balance of the Rental Deposit of HKD 40,000 and (ii) the rent for the first month of HKD 40,000 was to be paid upon signing of the Formal Agreement.

11.  There were 2 handwritten clauses in the PTA, namely Clause 22 which stated that the rental was inclusive of the standard developer fittings and furniture and television and Clause 23 stated that D1 was to be the guarantor of the tenancy agreement.

12.  According to Ds, on 19 January 2013, the Landlord obtained vacant possession of the Property from the previous tenant and D1’s wife met with the Landlord and the agent at the Property with the intention that the parties would sign the Formal Agreement on that day.  According to D2, the Landlord insisted that D1 should affix the company seal on the Formal Agreement.  Ds claimed they were not informed of this and as no company seal was affixed to the PTA, D1’s wife did not have the company seal with her.  According to D2, Ds then requested C to arrange the signing of the Formal Agreement on or before 24 January 2013 and in the meantime, they started to apply for utility services and arrange for removal services and delivery of new furniture.

13.  However, according to Ms Zheng, at the inspection on 19 January 2013, D2’s wife discovered there were no curtains and no curtain railings, and also there were no lights in the living room and the bedroom, and D2’s wife also noticed several dirty patches behind the wardrobe.  D2's wife then requested the Landlord to provide curtain railings and curtains and new lights, and also to repaint the walls, but the Landlord did not agree at the time, and that was why the parties were not able to sign the Formal Agreement that day.

14.  According to Ms Zheng, on 20 January 2013, the Landlord replied that she was willing to clean the walls and on 22 January 2013, the Landlord indicated she was also willing to install curtain railings.

15.  According to Ms Zheng, the Landlord had on 28 January 2013 requested that the keys be handed over to Ds on 4 February 2013 but this was not agreed by Ds who insisted on the handover being on 1 February 2013 in accordance with the PTA, and the matter was later agreed by the parties to be dealt with on 1 February 2013.  As Ms Zheng was otherwise engaged on 1 February 2013, Mr Ho was the one who attended the Property with D2 and the Landlord’s husband that day.

16.  Earlier on 1 February 2013 D1 had sent a letter to the Landlord[2] referring to the PTA and the parties’ subsequent verbal agreement, stating that the Landlord should hand over the Property to D1 on 1 February 2013, and that the D1 would invite the Landlord and her representative to hand over the Property to D1 and “to finish the related paper works” (sic) at the Property at a reasonable time that day.  D1 had further stated if the Landlord could not hand over the Property to Ds that day, it would be regarded as a material breach of the agreement and they would exercise their contractual and legal rights to claim damages from the Landlord.  According to D2’s evidence, by “paper works”, he was referring to the Formal Agreement.

17.  At around 5:30 pm on 1 February 2013, D1, Mr Ho and the Landlord’s husband attended the Property for inspection.  At the inspection, Mr Ho had produced a copy of the Formal Agreement for the parties to sign.  However, according to Mr Ho, D1 suggested that a new term be included in the Formal Agreement to give D1 “7 days” to inspect various electrical appliances (“Additional Term”). The Additional Term was then handwritten on the Formal Agreement by Mr Ho and the Formal Agreement was signed by Ds[3] who had handed to Mr Ho a cheque for HKD 80,000 for the Landlord, with instructions to Mr Ho not to hand over the cheque to the Landlord unless the Landlord agreed to the Additional Term.  At the time of the inspection, as the Landlord’s husband indicated that he was not the Landlord and had no authority to make decisions, he then suggested that Mr Ho to ask the Landlord instead. 

18.  The Additional Term was:

“洗衣機、乾衣機、雪櫃、煮食爐頭三個、抽油煙機、紅酒櫃、微波爐各一個。冷氣機5部、熱水爐一部(發展商交樓標準)。(以上電器租客可於交匙後7天內要求業主維修，之後業主不負責) 唯租客可要求業主將失效之電器棄置。

Washing machine, dryer, refrigerator, cooking stove x 3, range hooker, wine cabinet, microwave oven, air conditioner x 5, water heater

(Tenant can request the landlord repairing the aforementioned apparatus within seven days of vacancy possession. After that period of time, the landlord shall not responsible for repairing; while the tenant has the right to request the landlord to dispose dysfunction apparatus)”

19.  According to Mr Ho, he later met with the Landlord that evening with the Formal Agreement and the cheque for HKD 80,000, but the Landlord did not agree to the Additional Term.  Later, the Landlord authorized her friend, a Mr Lee (“Mr Lee”), to continue to negotiate with Ds through Mr Ho.  D2 had suggested that “7 days” be amended to reasonable time but this was refused by the Landlord who would only agree to give Ds until 12 noon on 2 February 2013 to inspect the electrical appliances.  This was in turn refused by D2.  Different options had also been proposed.  The parties continued to discuss until late that night but were eventually not able to reach agreement on the Additional Term or other proposed terms.  The parties in the end failed to sign the Formal Agreement.  Ds’ cheque for HKD 80,000 was not handed to the Landlord, nor did the Landlord hand over the keys of the Property to Ds.

20.  On 7 February 2013, the Landlord through her solicitors issued a letter to Ds stating that she would forfeit the deposit since amongst other things, D1 had insisted on the inclusion of the Additional Term in the Formal Agreement and further D2 had failed to give a guarantee signed by D2 in his personal capacity pursuant to Clause 23 of the PTA.

21.  On 24 October 2018, C lodged a claim in the Small Claims Tribunal against Ds.  It was C’s case that Ds were in breach of the PTA, and according to Clause 12 of the PTA, C claimed the commission of HKD 40,000 from Ds.  Ds refused to pay and their defence at that time was (i) it was the Landlord who was in breach of the agreement; (ii) there was misrepresentation on the part of C; (iii) there had been a breach of duty on behalf of C.

22.  After a trial, C’s claim was allowed on 26 July 2019 and was awarded the sum of HKD 40,000 for commission and HKD 7,743.62 in costs plus interests.  Ds appealed with leave granted by K Yeung J on 26 November 2019.  Ds’ appeal was subsequently allowed by K Yeung J on 18 June 2020 and the case was remitted to the Tribunal for a trial de novo (HCSA 31/2019).

23.  The trial de novo, or the re-trialtook place on 25 November 2020.  There were two lists of undisputed facts before the Adjudicator[4]. It was agreed by the parties that there was no need for the Adjudicator to determine whether there had been other breaches of the PTA by the Landlord and whether C had been in breach of its duty towards Ds.  There was a list of disputed matters agreed by Ds which the Adjudicator had to determine[5].

24.  After the re-trial, C’s claim was again allowed and C now seeks leave to appeal against this award.

Grounds of Appeal

25.  Form 9 was filed in Chinese by Ds in person and the grounds of appeal originally stated therein were:

(1)     “原審裁判官對關鍵問題作出裁決時，忽略了重要證據，及不合理和不成比例地依賴了傳聞證供，及依賴了一些不相關的證據。

(2)     原審裁判官在裁定關鍵事項時，用了錯誤法律原則。”[6]

26.  On 23 March 2021, an amended Form 9 was filed with additional/perfected grounds, which can be summarized as follows:

(1)     The Adjudicator had misconstrued Clause 12 of the PTA (“Ground (1)”);

(2)     The Adjudicator had failed to take into account relevant and material matters (“Ground (2)”);

(3)     The Adjudicator’s reasoning that the balance of the deposits ought to be paid by D1 on or before 1 February 2013 or 12 noon on 2 February 2013 was arbitrary and/or erroneous and/or without proper legal basis (“Ground (3)”);

(4)     The Adjudicator had taken into account irrelevant matters into consideration (“Ground (4)”);

(5)     The Adjudicator had erred in law by concluding that the Landlord’s indication of her willingness to deliver the keys was not a condition under the PTA (“Ground (5)”);

(6)     The Adjudicator had failed to observe that the burden of proof that C had the burden to show that the Landlord was willing, ready and able to complete in the deal at the material time (“Ground (6)”).

Ground (1)

27.  Clause 12 of the PTA reads in English as follows:

“12. If for any reasons either the Landlord or the Tenant fails to complete the deal in the manner herein contained, the defaulting party shall compensate at once the Agent HK$40,000 as liquidated damages.”

28.  In Chinese, it reads as follows:

“12. 無論在任何情況下，若業主或租客任何一方未能依本合約之條款租出或租入該樓宇，則毀約之一方須即時付予經紀港幣40,000作為賠償經紀之損失，毀約之一方並須負責繳付印花稅.”

29.  It was submitted on behalf of Ds that the real focus of Clause 12 was whether the Landlord of D1 had failed to complete the deal in the manner contained [in the PTA], and not just whether the Landlord or D1 had committed any breach(es) under the PTA, and thus the most important issue before the Adjudicator was whether D1 was the defaulting party, namely the party who failed to complete the deal in the manner therein contained in the PTA.

30.  Further, it was submitted that in light of the wording of Clause 12, there could only be 3 possible scenarios:

(1)     D1 did not commit any breach at all.  In such scenario, D1 could not be the defaulting party under Clause 12;

(2)     D1 did commit breach(es) under the PTA, but such breach(es) did not lead to the parties’ failure to complete the deal in the manner contained in the PTA, in which scenario, D1 would not be liable to compensate C under Clause 12;

(3)     D1 did commit breach(es) and such breach(es) had led to the parties’ failure to complete the deal in the manner contained in the PTA, in which scenario, D1 would be liable to compensate C under Clause 12.

31.  It was further submitted that in light of the above, in order to determine whether D1 was the defaulting party who led to the failure to complete under Clause 12, the Adjudicator ought to have considered the following:

(1)     whether the PTA was still legally binding under the circumstances;

(2)     if the answer was yes, whether D1 had committed any breach under the PTA; and

(3)     if the answer was yes, whether such breach(es) committed by D1 had led to the parties’ failure to complete the deal in the manner contained in the PTA.

32.  The Adjudicator’s finding in paragraph 44 of the Reasons on (1) above was that the PTA was still legally binding notwithstanding the handwritten words inserted by Mr Ho. As for (2), the Adjudicator’s finding in paragraph 57 was clearly that D1 was the one who was in breach of the terms of the PTA.

33.  It was the finding of the Adjudicator in paragraph 54 of the Reasons that unless there was a further agreement between the parties, the latest time that D1 should pay the balance of the deposit was prior to the Landlord handing over possession (or keys) of the property on 1 February 2013 or before 12 noon on 2 February 2013.  The Adjudicator found that there was no indication that D1 had intended to pay to the Landlord the balance of the Rental Deposit on 1February 2013 or before noon the next day, and the Adjudicator found that D1 had breached the PTA[7].

34.  Although the Adjudicator did not pose the question (3) specifically, it was clear from paragraphs 60 and 61 of the Reasons that that the Adjudicator’s findings were that it was D1’s breach which had led to the deal being not completed and that the Landlord had the right to forfeit the sum of HKS 40,000 (being part of the deposit).  The Adjudicator found that in accordance with Clause 1 of Annexure 3 of the EAA and Clause 12 of the PTA, Ds were jointly and severally liable to pay C the commission of HKD 40,000.

35.  Having considered the above, I am of the view that the Adjudicator had not misconstrued Clause 12 of the PTA.  I thus do not find Ground (1) arguable.

Grounds (2) – (4)

36.  As mentioned earlier, in paragraph 44 of the Reasons, the Adjudicator found the Additional Term was not necessarily unreasonable but due to the parties not being able to reach agreement on the Additional Term, the Formal Agreement could not be signed.  However, this did not mean that the parties were not bound by the PTA and the Adjudicator found that the PTA was still legally binding on the parties and that either the Landlord and/or Ds could request the other side to comply with the terms of the PTA.  In my view, the Adjudicator’s finding in this respect could not be faulted.

37.  According to the Adjudicator, Mr Ho’s evidence was that when the Landlord refused to agree to the Additional Term, D2 had then proposed (1) the parties to cancel the agreement and the Landlord to return the 50% part of the Rental Deposit paid by Ds; and (2) the parties to continue with the tenancy pursuant to the PTA but the Landlord had to hand over the keys immediately but because the parties had not yet signed the Formal Agreement, Ds did not need to pay the balance of the Rental Deposit.  However, the Landlord’s position was if the parties were to abide by the PTA, Ds had to pay the balance of the Rental Deposit.  D2’s evidence was that he had never thought he did not have to pay for the balance of the Rental Deposit and he adopted an open attitude as to when he paid the balance of the Rental Deposit and the 1^st month’s rent but he had instructed Mr Ho that the matter was to be discussed upon the Landlord being willing to hand over the keys first.

38.  As the Adjudicator had said in paragraphs 52-55 of the Reasons, he agreed with C that normally the Rental Deposit was to ensure the tenant would abide by the terms of the tenancy agreement.  As provided in the PTA, the time line was (i) the Formal Agreement to be signed on or before 31 March 2019; (ii) the balance of the Rental Deposit and the 1^st month’s rent were to be paid upon signing of the Formal Agreement; and then (iii) the Property was to be handed over to Ds for the rent free period on 1 February 2013. Thus, the Adjudicator found that the reasonable time for Ds to pay the balance of the Rental Deposit was prior to the Landlord handing over the keys and further found that Ds had never expressed that they were willing to pay the balance of the Rental Deposit prior to the handover of the keys, nor was this stated in Ds’ solicitor’s email sent in the evening of 1 February 2013.  Further, the Adjudicator found in paragraphs 56 and 57 that it was Ds who failed to pay the balance of the Rental Deposit prior to 1 February 2013 or by 12 noon on 2February 2013 (the deadline imposed by the Landlord) and that Ds were in breach of the PTA.  The Adjudicator accepted the evidence of Mr Ho as indicated in paragraph 59.

39.  The above were findings of facts by the Adjudicator and the Adjudicator was entitled to such findings having heard the oral evidence of all the witnesses at the trial before him. 

40.  Mr Chow had argued that there could be simultaneous exchange of the balance of deposits and keys as C was the dual agent for both C and D1.  Mr Chow further argued that it was reasonable or not unreasonable for D1 to take the view that the Landlord was not ready, willing and/or able to perform her obligations at the material time as at 1 and 2 February 2013, when the rent-free period should already have commenced according to the PTA, and the parties were still negotiating on the final terms to be included in the Formal Agreement. 

41.  However, the negotiations only arose out of Ds’ Additional Term.  Although Ds had given a cheque to Mr Ho to stakehold, their instructions to Mr Ho was not to hand over the cheque until the Landlord had agreed to the Additional Term. Mr Chow submitted that the Landlord could also hand over the keys for Mr Ho to stakehold which she did not.  Further the Landlord’s reason for non-delivery of keys was double hearsay and/or was not due to the dispute regarding the payment of the balance of the Rental Deposit, and further the Landlord or Mr Lee was not called as a witness by C in support of C’s claims against Ds.

42.  As said, the timeline according to the PTA as found by the Adjudicator was that D1 was to pay the balance of the Rental Deposit first before the Landlord was to hand over the keys.  The Court’s attention had not been drawn to any evidence that Ds had agreed to Mr Ho handing over to the landlord the cheque for the Rental Deposit on 1 February 2013 or before noon on 2 February 2013, apart from his oral evidence.  This Court cannot see any provision in the PTA that the keys were to be handed over the agent to stakehold at the same time of the handing over of the cheque for the Rental Deposit.

43.  As pointed out by the Adjudicator, it was only during the re-trial that Ds had produced the letters dated 7 February 2013[8] from the Landlord’s solicitors and Ds’ solicitors’ reply thereto of 13 March 2013[9].  These letters were added by Ds as “new evidence” on 26 October 2020, about a month prior to the re-trial.  The Adjudicator had pointed out in paragraph 58 of the Reasons that the letter of 7 February 2013 was inconsistent with D2’s evidence in paragraph 32 of D2’s witness statement of 13 December 2018.

44.  In any event, D2 had relied on the letter of 7 February 2013 during the trial to say that it was not the Landlord’s case that she refused to hand over the keys because Ds had not paid the balance of the Rental Deposit.  However, the Adjudicator had said that he did not doubt Mr Ho’s evidence that he had heard from Mr Lee who was authorized by the Landlord to conduct the negotiations with Ds that the Landlord would not hand over the keys prior to Ds paying the balance of the Rental Deposit.

45.  Mr Chow submitted that the Adjudicator’s finding was based on double hearsay and that C should have called Mr Lee or the Landlord to give evidence.

46.  In so far as I can see, there was no evidence or indication from Ds nor was it Ds’ case that Mr Lee did not have proper authority to carry out the negotiation on behalf of the Landlord at the time.  In fact, from the Landlord’s email to Mr Ho at 21:42 on 1 February 2013[10] which will be referred to later, the Landlord had mentioned that Mr Lee had already told Mr Ho her solicitors’ advice.  Further, as the Adjudicator had said in paragraph 59 of the Reasons, if the Landlord had not told Mr Ho that she would only hand over the keys and carry out the terms of the PTA after Ds had paid the Rental Deposit, why would Mr Ho want to fabricate this.  The Adjudicator had also found that Mr Ho’s evidence was not inconsistent with the Landlord’s said email to him, nor was it inconsistent with the Landlord’s solicitors’ letter of 7 February 2013.  Again these were all factual findings by the Adjudicator and in my view, it was not necessary to call the Landlord or Mr Lee.

47.  Having considered the above, I do not find Grounds (2)-(4) are arguable.

Ground (5)

48.  All the Adjudicator said in paragraph 55 of the Reasons was that his finding that Ds had the obligation to pay the balance of the Rental Deposit was not based on whether there was indication by the Landlord of her willingness to hand over the keys.  The Adjudicator had pointed out that Ds had emphasized that there was no indication on the part of the Landlord that she was willing to hand over the keys but the fact was that Ds had never indicated their willingness to pay the balance of the Rental Deposit prior to the Landlord handing over of the keys.

49.  I see no error in law on the part of the Adjudicator.

Ground (6)

50.  Mr Chow submitted that the Adjudicator had failed to observe that the burden was on D to show that the Landlord was willing, ready and able to complete in the deal at the material time, and the Adjudicator had misplaced the onus of proof on Ds to demonstrate the Landlord’s unwilling ness to complete the deal.

51.  What is clear was that as seen in the Landlord’s email to Mr Ho, as mentioned earlier, the Landlord did not agree to the Additional Term and was only prepared to give Ds until noon on 2 February 2013 to inspect the electrical appliances.  The Landlord had in fact pointed out in her email to Mr Ho that Ds never requested for curtains or curtain railings at the time of the signing of the PTA and only requested the same after the PTA had been signed, and yet the Landlord had satisfied their request and supplied the same.  The Landlord further pointed out that after Formal Agreement was drafted in accordance with the PTA, Ds then raised the Additional Term and this was unreasonable, but she would agree it would be reasonable to give them one day for inspection of the electrical appliances.  The Landlord also reminded Mr Ho that he had not yet provided to the Landlord copies of Ds’ HKID card/name card and urged Mr Ho to deal with this matter properly.  

52.  The above in fact all showed that the Landlord was at that time willing to continue with the tenancy. 

53.  In fact, in paragraph 66, the Adjudicator had found that C had succeeded in proving that Ds were liable to pay C the commission of HKD40,000.  There was no evidence to show that the Adjudicator had misplaced the onus of proof.

Conclusion

54.  As set out in section 28(1) of the Small Claims Tribunal Ordinance

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

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

(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.”

55.  Having regard to the above, the findings of the Adjudicator were mainly findings of fact and there was no error in law on the part of the Adjudicator.  The claim was within the jurisdiction of the tribunal.  I find that the Grounds are not arguable and I hereby dismiss Ds’ application for leave to appeal.