XCHRX PARK REALTY CO. v. ALEXANDER

1994, No: A4683.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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The Claim

1. The plaintiff, an estate agent, pursues the defendant for the sum of $168,000, which it says is due to it arising out of the defendant's agreement to purchase a flat in King's road.

Order 14 Proceedings

2. The plaintiff applied for summary judgment under Order 14. On 24 October 1994, Master O'Donnell gave the defendant unconditional leave to defend. The plaintiff now appeals against this order. The Master's note of his decision says: "This is not a plain and obvious case where summary judgment should be entered under O. 14 RSC. There are substantial issues of fact and law on which this action should go for trial. Defendant granted unconditional leave to defend. Costs to the defendant in any event."

The Purchase Agreement

3. On 23 March 1994, the defendant entered into a provisional agreement of sale and purchase under which the defendant agreed to buy the flat for a price of $16.8 million. This agreement provided for the payment of the purchase price, including an initial deposit of $500,000 and payment of the sum of $2,860,000 on or before 18 April 1994 upon signing of the "Formal Agreement for Sale and Purchase". It was agreed that, if the defendant failed or refused to sign a formal agreement, the initial deposit would be forfeited to the vendor in full settlement. Additional clauses in the provisional agreement provided -

"8. The Purchaser and the Vendor has appointed Park Realty Company as his agent for the purpose of selling and purchase the above property.

9. The Purchaser shall pay Park Realty Company HK$168,000 . . . as commission and such commission shall be paid by the Purchaser . . . upon their signing the Formal Agreement.

10. If in any case either the Vendor or the Purchaser be in breach of this Agreement, the defaulting party shall compensate to Park Realty Company HK$168,000 as liquidated damages."

4. The provisional agreement does not say that the plaintiff is a party to the agreement, and it is signed on behalf of the plaintiff in a space provided for the signature of a witness.

The Sale Agreement

5. Also on 23 March 1994, defendant entered into a provisional agreement of sale and purchase in respect of his own flat.

The Statement of Claim

6. According to the amended statement of claim, the plaintiff alleges that the defendant agreed to pay the sum of $168,000 by way of commission under the purchase agreement, and says that the agreement provided that "if any party shall fail to sign the formal Sale and Purchase Agreement on or before the 18th day of April 1994, the party in default shall compensate the Plaintiff by payment of compensation of HK$168,000". In the alternative, the plaintiff alleges that, by oral agreement made on or around 23 March 1994, between the plaintiff on the one part and the defendant and the vendors of the flat on the other part, the defendant and the vendors appointed the plaintiff as their agent in the sale and purchase of the flat on terms that -

a) the defendant should pay the plaintiff commission in the sum of $168,000 upon signing of the formal agreement;

b) alternatively, should either the defendant or the vendors fail to sign the formal agreement, the defaulting party shall pay the plaintiff the commission of $168,000.

7. The plaintiff alleges that the defendant failed to sign the formal agreement on or before 18 April 1994, so the defendant is liable to pay the sum of $168,000.

8. As a further alternative, the plaintiff claims the sum of $168,000 on a quantum meruit basis.

The Defence

9. The defendant contends that -

a) the plaintiff is not entitled to recover under the purchase agreement because it was not a party to that agreement;

b) there was no oral agreement to pay commission;

c) clause 10 of the provisional agreement, or its equivalent in any oral agreement, is a penalty clause and unenforceable;

d) the plaintiff did not do its job properly so is not entitled to any commission;

e) if it did do its job properly, it may be entitled to claim on a quantum meruit basis, but the basis and amount of this is a matter for trial.

The Law

10. The defendant must satisfy me that it has a reasonable probability of showing a real or bona fide defence; i.e. that its evidence is capable of belief. If the evidence of the defendant is not reasonably capable of belief in any material respect, it cannot be said that there is a fair and reasonable probability that the defendant has a real or bona fide defence and judgment should be given for the plaintiff.

The Evidence

11. Miss Wong Lai Chun, an employee of the plaintiff, says that, around the middle to late 1993, the defendant engaged the plaintiff as his agent to sell his flat, making it clear that he would only sell if he could at the same time purchase certain other premises. On 23 March 1994, the defendant, the vendors of the flat that the defendant wished to buy, and the person who wished to purchase the defendant's flat were all present at the plaintiff's office. There, Miss Wong says, the question of commission was specifically discussed with the defendant. He was told clearly that while the plaintiff would not charge him commission for the sale of his premises, commission would be charged in respect of his purchase, and that the commission would be 1% of the price. The defendant attempted, unsuccessfully, to bargain down the rate of commission, and then agreed to pay as stipulated.

12. The defendant says that, around September 1993, he instructed the plaintiff to act as his agent to look for a flat and to sell his own flat. He says that he specifically told the plaintiff that the sale of his own flat and the purchase of another flat had to be done simultaneously because he needed the sale proceeds of his flat to pay for his purchase. On 23 March 1994, he attended the meeting at the plaintiff's office with the vendors of the other flat and the purchaser of his flat. After discussion, they agreed on the terms of the transactions. The provisional agreements were produced. The defendant says he knows very little English, written or spoken, and very little written Chinese. He did not read the agreements; nor could he understand them. "I just made sure that the figures therein were right and signed the contracts. The other parties also signed." He says no one told him that he had to pay commission for the plaintiff's services, or that the plaintiff was also acting as agent for the purchaser of his flat and the vendors of the other flat.. He denies that he sought to negotiate a lowering of the commission rate.

13. The purchaser of the defendant's flat could not raise a mortgage, so he could not proceed with the purchase. As a consequence, the deposit paid by him was forfeited. The defendant could not then complete in respect of the flat he wished to purchase, and he forfeited the deposit paid by him.

14. The defendant says that, when Miss Wong told him on or about 14 April 1994 that his purchaser could not raise a mortgage, he asked her for the telephone number of the owners of the property he had agreed to buy, but she refused to supply this. He repeated his request on 15 April, but this was again refused. He wanted to the owners to postpone the date for the payment of the further deposit due under the provisional agreement. During the afternoon of 15 April, Miss Wong told him that the owners would not agree to postpone the date. The defendant complains that, by refusing to disclose the owners' telephone number to him, the plaintiff breached their duty to him to carry out his reasonable instructions.

15. The defendant is a businessman; he says he is an "Indonesian visiting Hong Kong from time to time for the purpose of buying garments for re-sale in Indonesia and Singapore". He is a man of some success and substance; he owned a property that was to be sold for $14.3 million and he was prepared to purchase one at a price of $16.8 million for the sake of a better sea view.

16. The defendant deposes to speaking to Miss Wong, and makes no mention of any difficulty in communication. Indeed, although he says he has very little spoken English, he does not say that he has any problem in understanding and making himself understood in the vernacular in Hong Kong. Clearly, he understood the negotiations regarding the disposal and acquisitions of the properties concerned, and is able to recite the details of the deals struck.

17. The defendant complains that the plaintiff should have advised him to demand a higher deposit on the sale of his flat so that he would have cover to meet his outgoings if the sale fell through. He implies that the plaintiff did not do this because it was also acting for the other parties involved and, therefore, there was a conflict of interest.

18. The defendant also complains that, the plaintiff being aware that he needed the proceeds of the sale of his own flat to purchase the other flat, it should have ascertained the financial position of his purchaser before the introduction.

19. The defendant also says that his instructions to the plaintiff were to buy and sell as one set of instructions, but, because of the default of his purchaser, the plaintiff has not completed his instructions.

20. When the defendant received a letter of demand from the plaintiff's solicitors in May 1994 saying that he was liable to pay $168,000 because he failed to complete the purchase, he says that he consulted a friend. His friend told him that under the contract he had agreed to pay an agency fee of $168,000. "I was then under a mistaken belief that I had to pay agency fee to the Plaintiff." He approached the plaintiff and offered to pay half the amount. This was refused. He approached the plaintiff again with an offer to pay $100,000 "so as to avoid trouble". This was also refused. He then consulted solicitors.

The Claim on the Written Agreement

21. On the face of it, the plaintiff is not a party to the provisional agreement, and there is no evidence to say that, in spite of appearances, the plaintiff is, in fact, a party. Clearly, the plaintiff is not entitled to judgment on this ground.

The Oral Agreement

22. There is a clear issue of fact regarding the defendant's alleged oral agreement to pay the sum of $168,000. The plaintiff's employees, Miss Wong Lai Chun and Miss Cheung Wai Lan, say that Miss Wong clearly explained to the defendant his liability to pay the commission of $168,000. This is probable and credible; it is just what one would have expected to happen in this situation. The defendant says that no one told him he had to pay commission to the plaintiff for its services, the amount of the commission or the manner of its payment. This is not probable or credible. The defendant is a businessman of some standing. He must have expected that he would be required to pay something for the plaintiff's services. If he had not been told about the commission, one would have expected him to ask about it. He is presented with documents which he says he did not read and could not understand, yet he signs them. I cannot believe that a businessman would sign documents involving these large sums of money without understanding them. He says he "just made sure that the figures therein were right and signed the contracts". The figures on the agreement concerned are "HK$16,800,000" as the purchase price, "HK$500,000" as the initial deposit, the sum of "HK$2,860,000" due on or before 18 April 1994, "HK$13,440,000" due on or before 27 April 1994, and, prominently, in two places, the amount of "HK168,000". Is it credible that the defendant would have made sure all the other figures were right, but would ignore the sum of $168,000 mentioned twice? Even on his own version of the facts, he must have seen these figures. Indeed, he makes no suggestion that he did not, or make any attempt to explain what he thought about these sums. Is it believable that, having seen these figures, representing, by anyone's standards, a large amount of money, he would not have asked to what they referred? The answer to these questions must be that the defendant cannot be believed on these points. He must have seen the figures relating to the commission, and he did not ask about them because he already knew to what they referred.

23. I find, therefore, that what the defendant says about his ignorance of the commission is not reasonably capable of belief. I find that he was told about the commission and he agreed to pay it. This finding is reinforced by the defendant's conduct when he received the letter of demand. If he knew nothing about the large sum of $168,000 claimed, the natural reaction to receiving a demand in respect of it would be to say - "Just a minute. I know nothing about this. No one told me about my liability to pay this sum. Please explain." He did not do this, but, instead, he made two attempts to get the plaintiff to accept a compromise amount. And the sums he offered were not paltry - $84,000 and $100,000; not the amounts one would offer to pay in the ordinary course if no explanation of one's liability to pay this had been raised beforehand.

24. So, the defendant did, in fact, agree to pay the sum of $168,000 to the plaintiff.

The Terms of the Oral Agreement

25. What were the terms of the defendant's agreement to pay the sum of $168,000? What was the event which would trigger his liability to pay this sum? Miss Wong says she explained the terms of the agreements to the parties. In particular, she explained to the defendant and the owners of the flat he was to buy that the plaintiff was appointed their agent, that the defendant was to pay $168,000 as commission upon the signing of the formal agreement on or before 18 April 1994, and that, in the event that either the defendant or the owners failed to so sign, the defaulting party would have to pay the sum of $168,000.

26. This I accept. This, of course, is not precisely what the agreement says: As I have recited above, clause 10 of the agreement speaks generally of a breach of the agreement, not specifically about failing to sign the formal agreement, but it is entirely in accord with the probabilities that Miss Wong would have spoken as she says she did because the minds of those concerned would have been naturally focused on the next step in the transaction - the signing of the formal agreement.

27. The defendant did not, of course, sign the formal agreement. He did not do so because the sale of his flat had fallen through, but this does not provide an excuse. He had no right, as against the owners of the flat he had agreed to purchase, to refuse to sign the formal agreement.

28. Thus far, therefore, it would seem that the defendant is bound to pay the sum of $168,000 as he agreed to do.

29. But, the defendant pleads, his deal with the plaintiff was that the proceeds of the sale of his own flat would be available for the purchase of the other flat. He says that Miss Wong gave him the assurance that the proposed arrangements would enable this to happen. I accept that something of this kind was said by Miss Wong. Indeed, she deposes that she said as much. And it is probable. This is what the defendant wanted, and, if the defendant's purchaser had performed his part of the bargain, this is what would have happened. The defendant's purchaser did not keep his side of the agreement. Is the plaintiff to be held responsible for this so that it is disentitled to its commission on the deal under which the defendant purchased? What this plea amounts to is an allegation that the agreement between the defendant and the plaintiff was that the plaintiff would introduce a purchaser who was ready, willing and able to purchase. If it failed to do that; if the purchaser proved to be, as in this case, not ready, willing and able to purchase the defendant's property, the plaintiff was not entitled to remuneration on the transaction under which the defendant was to purchase. In other words, the two transactions are to be taken together, and, if the plaintiff failed to carry out its mandate on the one, it would not be entitled to commission on the other.

30. In this case, the written agreement contemplated that the commission would be payable on the signing of the formal agreement. If the plaintiff had been a party to this agreement, the defendant would have been in difficulties in establishing that the commission was payable, not just on the signing of the formal agreement, but also on the happening of another event - the introduction of an ready, willing and able purchaser. But the plaintiff was not a party to the written agreement; the agreement between the plaintiff and the defendant regarding the commission was collateral to the written agreement, and is to be construed from the conversations between the plaintiff and Miss Wong. It is true that, in the final stages, it is probable that Miss Wong would have obtained the agreement of the defendant to pay commission on much the same terms as were set out in the written agreement; that is, that the commission would be payable upon the signing of the formal agreement. But it may be that this should be construed as a term relating to the time when the commission would be payable, not the event the happening of which marked the fulfilment by the plaintiff of what it had undertaken to do to earn its commission. It seems to me that the agreement between the plaintiff and the defendant may have been that the plaintiff was to find a ready, willing and able purchaser for the defendant's flat and, having done so, the commission on the purchase of the flat bought by the defendant would be payable on the signing of the formal agreement. There is nothing unusual in an arrangement under which the agent is to find a purchaser who ready, willing and able to complete before the commission is earned; indeed, without more, this would be the implied term of an estate agency deal. The situation is complicated here by the fact that there were two agreements, and the defendant's potential liability to commission was under his purchase agreement rather than his sale agreement, but there seems little doubt that both the plaintiff and the defendant treated the agreements as very much linked together.

31. The result of this is that I believe that the ascertainment of the precise terms on which the plaintiff was to earn its commission requires evidence at a trial. The oral evidence of the defendant and Miss Wong will need to be carefully examined to come to a conclusion on this point. This is clearly a triable issue.

A Penalty?

32. The defendant says he is not liable to pay this sum of $168,000 because it is a penalty. It is not a penalty. If, subject to the triable issue mentioned above, the defendant had signed the formal agreement, the plaintiff would have been entitled to the sum of $168,000 as commission. If he did not do so, he agreed to pay precisely the same sum. It would be difficult to think of a case in which the sum payable on breach is more pre-eminently a genuine pre-estimate of loss. The parties knew precisely what the plaintiff would lose if the defendant or the owners failed to sign the formal agreement, and it is that precise amount that the defendant agreed to pay.

Other Issues

33. The defendant makes further allegations centred around a broad allegation that the plaintiff got itself involved in a situation in which it owed duties to different people with conflicting interests, and another allegation that the plaintiff failed to take reasonable care to ascertain the financial position of the defendant's purchaser. These allegations, or some of them, could go to the root of the contract and may disentitle the plaintiff to remuneration. They require close examination, but there is no need to do that here because I have found that there a triable issue on the matter of the terms of the plaintiff's mandate.

The Result

34. In the result, I find that there is at least one triable issue in this matter, and that the Master was right to give unconditional leave to defend. Accordingly, I dismiss the appeal.

The Costs

35. There appears to be no reason why the defendant should not have his costs, and I make an order nisi accordingly.