CENTALINE PROPERTY AGENCY LTD v. WONG CHUN CHUNG PERCY

DCCJ 1255/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1255 OF 2013

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J U D G M E N T

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Introduction

1.  This is a claim of liquidated damages by an estate agency company (the Plaintiff, “P”) for the sum of HK$75,550 pursuant to a Preliminary Sale and Purchase Agreement (“PSPA”) signed by the Defendant (“D”) who was the intended purchaser of the subject domestic property, the vendor (“V”) and P due to D’s failure to complete the transaction.

2.  D denies P’s claim but counterclaims P for HK$100,000 being the loss and damages suffered by D in the legal proceedings instituted by V against D for dishonoured cheque which was issued by D for initial deposit payment.

Background

3.  On 25 August 2012, D visited a branch office of P at Kowloon Bay with a view to buying a residential property for himself.  D was attended by an estate agent of P, Fred Yuen (“Fred”) who brought D to view several flats including the subject property at Scenic View, Fung Shing Street.  P had interest in the subject property after the visit and asked Fred about the price.

4.  D viewed the subject property with Fred again the next day (26 August 2012), and instructed Fred to negotiate with V.  Fred suggested D to sign a PSPA unilaterally and a cheque for initial deposit, so as to facilitate negotiation with V. 

5.  On that evening, Fred brought the PSPA to P for signing.   Although the PSPA was not complete, leaving some terms blank, such as date of signing the formal sale and purchase agreement, the dates of paying further deposit and balance of the purchase price and the completion date … etc, it contained the essential terms like the names of parties, the address of the subject property, and the purchase price of HK$4,355,000.

6.  D also gave Fred a cheque of HK$100,000 and signed a prescribed form letter of P (“Authorisation Letter”), stating that if the price of the property did not exceed HK$4,355,000, the agent would be entitled to conclude the PSPA on behalf of D and to give the cheque to V.  Armed with the PSPA and cheque, Fred left D and went to negotiate with V immediately.

7.  V agreed to the price as per the PSPA and signed on it eventually.  Fred handed the cheque to V as initial deposit.  Later on that night, Fred called P about the discovery of the change of V’s name.  Since the cheque held by V was in V’s old name, Fred asked P to meet the next day to exchange cheques.   

8.  D worried about the identity of V and consulted his banker and solicitor the next morning of 27 August 2012.  He decided to issue a cheque in the name of V’s solicitors and asked Fred and V to meet at 12:30 pm to exchange cheques and to provide P the name of V’s solicitors.

9.  Fred and V did not turn up at the meeting without prior notice.  D finally decided not to proceed with the deal and informed Fred by WhatsApp in the afternoon of 27 August 2012. 

10.  D then countermanded the cheque given to V.  As a result, the cheque was dishonoured upon presentation by V who then claimed D for HK$100,000 for dishonoured cheque.  D eventually settled with V by paying V the claimed amount.  Now D counterclaims P for such payment.

The Issues

11.  The dispute over entitlement of the commission payable by D to P under the PSPA rests on whether there are any breaches of P’s duties owed to D for Fred’s failing to follow two sets of instructions given by D.

12.  Firstly, there are factual disputes over the contents of the two sets of instructions:

(i) the 26 August 2012 instructions regarding the manner of negotiation and entering into the PSPA with V;

(ii) the 27 August 2012 instructions regarding the exchange of cheque and clarification of the identity of V.

13.  Secondly, parties dispute whether Fred has followed the D’s instructions and thus any breach of agent’s duties.

14.  Finally, if Fred is found guilty of breach of any agent’s duties, whether P should be deprived of the commission or liquidated damages under the PSPA.

15.  Although parties dispute whether Fred has orally confirmed with D as to the amendments and deletion of the PSPA, D’s counsel does not dispute the validity of the PSPA which has been amended without D’s initials provided that Fred has sought D’s prior consent.

The First Instructions given on 26 August 2012

16.  The different versions of the first set of instructions according to parties’ pleadings are summarised as follows:

P’s Case

D’s Case

1. D instructed Fred to offer V $4,355,000 to buy the property and Fred then prepared the PSPA with such purchase price therein while leaving some of the terms blank; 2. Fred explained to D that if V agreed to sell the property at $4,355,000, Fred would then negotiate with V the blank terms such as the date of further deposit payment, completion date, date of signing the formal sale and purchase agreement, the amount of P’s commission and liquidated damages; 3. Thereafter Fred would call D to seek his instructions whether the filling in of the blank terms as proposed by V were acceptable to D before filling in the details of the blank terms and allow V to sign the PSPA.

1. The PSPA and the cheque were regarded as an invitation to treat for V to provide offer to the D; 2. Fred should report to D about the offer (if any) made by V as soon as practicable; 3. P should not allow V to sign on the PSPA and/or hand over the cheque to V unless and until D has given further instructions to P to accept such offer notwithstanding the content of P’s Authorisation Letter; 4. The purpose of signing the Authorisation Letter is merely to fulfil the procedural requirement of P and Fred would not conclude the PSPA on D’s behalf unless and until he has strictly complied with the above instructions.

17.  According to D, in order to show sincerity to V, Fred suggested to D that he should draw a cheque for initial deposit and unilaterally sign on the PSPA with the selling price of HK$4,355,000 stated on it, so as to invite V to offer a selling price which did not exceed HK$4,355,000. 

18.  If the PSPA with a stated selling price was used to show sincerity of D, it is natural to expect Fred to show the PSPA to V in order to persuade him.  However, once V has seen the selling price stated on the PSPA, it is highly unlikely that V would offer a selling price lower than the stated price. 

19.  If the PSPA was intended to be used as an invitation to treat, it is unnecessary and unreasonable to state the bottom line price of D on the PSPA and to fill in clause 2(b): further deposit amount based on the stated selling price and clause 11: the commission amount of HK$43,550 also based on the stated price. 

20.  Further, it is inconceivable that D would ignore the contents of the Authorisation Letter which are contrary to his instructions and would accept Fred’s mere assertion that it was just a red tape and signed on it.  In particular, D has received post-secondary education, holding a diploma in design and has four times’ property transaction experience.

21.  In the circumstances, it is inherently improbable that such PSPA with D’s bottom line be used as an invitation to treat.

22.  On the other hand, I find that P’s version of the D’s first instructions is more reasonable and tallies with the Authorisation Letter.  Therefore, I accept that the selling price as stated in the PSPA was an offer to buy the property at such price.  It was expected that Fred would show the unilaterally signed PSPA and the cheque to V to persuade V to accept the offer made by D.  I also attach full weight on the Authorisation Letter.

23.  For the above reasons and after weighing the evidence before me, I accept the P’s case and reject the D’s case regarding the contents of the first set of instructions given on 26 August 2012. 

Any Non-compliance of the First Instructions or Breach of Duties

24.  Paragraph 7 of the Amended Defence and Counterclaim sets out the alleged breach of the agency agreement and/or the First Instructions by failing to do the following:

“(a) report to D in regard to the offer made by V on 26 August 2012 before allowing V to sign on the PSPA;

(b) concluded the PSPA on D’s behalf without further instructions from D;

(c) hand over the Cheque to V without the instructions of D;”

25.  It is common ground that Fred did call D in the evening of 26 August reporting the results of the negotiation with V, but parties dispute the contents of that telephone conversation:

P’s Case

D’s Case

1. Fred called D at around 10:40 pm informing D that V has agreed to sell the property as per the price stated in the PSPA; 2. Fred reported to D the filling in of the blank terms agreed by V, such as the date of further deposit payment, completion date, date of signing the formal sale and purchase agreement, the amount of P’s commission, liquidated damages and furniture list; 3. Fred also reported that there is no problem with V’s mortgage repayment records and thus the clause 10 regarding stake-holding of deposit by solicitors would be deleted; 4. Having confirmed with D that he has no objections to the above matters, Fred said he would then fill in the blanks of the PSPA, let V sign on it and give him the cheque.

1. Fred called D and said right away that V had already signed on the PSPA at the price as per the PSPA and had handed over the cheque to V; 2. Under cross-examination, D eventually admitted that Fred had gone through the terms of the PSPA.  D just let Fred finish and said his lawyer would follow up; 3. D further confirmed under cross-examination that Fred had mentioned commission to D and said mortgage repayment record of V should be okay.

26.  In gist, the main dispute regarding this telephone conversation is whether Fred has already let V sign on the PSPA and has given the cheque to V before the call.

27.  If Fred has failed to seek D’s instructions as to filling in the blank terms before allowing V to sign on the PSPA (which is now considered as a serious breach of duties by D), it is unlikely that D would not protest against Fred’s non-compliance upon knowing it.  In fact, when D was cross-examined about his testimony given at the Estate Agents Authority hearing, D confirmed that he did say he was “happy” when Fred told D that V acceded to the price of the PSPA.  

28.  Besides, according to D’s original home-made Chinese Defence and Counterclaim before the amendment, he just said Fred called him that night to inform him that Fred had succeeded in the negotiation and the price was $4,355,000. (The original text in Chinese: “同日晚上約十時﹐我收到袁的電話告知已經議價成功﹐價錢為$4,355,000”.) D did not accuse Fred of failing to confirm instruction with him before asking V to sign on the PSPA and giving the cheque to V.

29.  In view of the above, I do not accept D’s evidence as to the contents of the telephone conversation with Fred about closing the deal with V.  I find that Fred’s evidence is more probable.  I accept his evidence in this regard and find that after Fred had reported to D about closing the deal with V, Fred then went through and confirmed with D all the terms previously left blank including the furniture list and sought D’s consent to delete the stakeholding clause 10 before V signed on the PSPA and received the cheque from Fred.

30.  Therefore, Fred has complied with D’s instructions to negotiate the deal with V on 26 August 2012 and has not breached his duties owed to D.

31.  D also accuses Fred of amending the PSPA without D’s knowledge and consent and D has not countersigned the amendments.  I refer to paragraph 29 above which I accept that Fred has gone through with D the blank terms of the PSPA, and has sought D’s consent to fill in the blanks.

32.  It is common ground that Fred did call D again late at night on 26 August after closing of the deal, informing D the change of V’s name.  It is Fred’s evidence that he first sought advice from his regional manager Larry Hui as to how to handle this sudden discovery and the amendment of the description of V.  Then Fred called D to seek his consent to add V’s new name beside V’s name as appeared on the PSPA and D agreed.  D did not mention in his witness statements about consulting him of adding V’s new name on the PSPA.  On balance of probabilities, I find it more probable that Fred has sought D’s consent to amend the description of V in accordance with Larry Hui’s advice.

33.  Thus, I do not find any breach of duty by Fred for amending the PSPA without D’s initials.

The Second Instructions given on 27 August 2012

34.  When Fred telephoned D about the discovery of the change of V’s name by deed poll, Fred also requested D to draw another cheque payable to V’s new name.  D agreed to meet Fred and V the next day (27 August) at 12:30 pm. 

35.  Having consulted his bankers and lawyers the next morning, D phoned Fred and requested the following things to be done by 12:30 pm that day;  otherwise the PSPA would be void:

(i) to provide the name of a law firm representing V, so that D could issue another cheque in favour of the legal representative of V;

(ii) to return the cheque held by V to D; and

(iii) to provide the original and a copy of V’s deed poll (this is not pleaded in the Amended Defence and Counterclaim but stated in D’s statement).

36.  There is not much factual dispute as to the contents of the 2^nd Instructions, save as Fred alleged that he was asked by D to provide V’s deed poll copy to D’s lawyer instead of D himself.

Any Non-compliance of the Second Instructions or Breach of Duties

37.  The accusation of Fred’s failure and Fred’s replies are summarised as follows:

D’s accusation

Fred’s Reply

1. Fred failed to provide the name of the legal representative of V within the prescribed time. 2. Fred failed to exchange the cheque with D within the prescribed time. 3. Fred failed to provide the original deed poll of V.

1. Fred conveyed D’s request to V’s wife who said she needed to seek legal advice. V finally acceded to receive the initial deposit by a cheque made payable to his lawyer after 4:31 pm but he still has not confirmed the name of his lawyer then. V later informed Fred the name of his lawyer at about 5:45 pm and Fred informed D of the same by WhatsApp at about 6:06 pm. 2. Fred failed to turn up at 12:30 pm.  D called Fred at about 1:30 pm asking why Fred failed to turn up.  Fred explained that V had not replied, so it was not possible to exchange the cheque. At 2:21 pm D sent a WhatsApp message to Fred stating that D decided not to proceed with transaction.  D did not respond to V even after Fred had sent the name of the V’s lawyer to D by WhatsApp after 6 pm that evening. 3. D only requested Fred to provide the copy to his lawyer and Fred has complied with the request.

38.  In CENTALINE PROPERTY AGENCY LTD v. LAI YUK CHUN [2002] 2 HKLRD 241, Deputy Judge To (as he then was) sets out the principle of depriving an agent’s commission due to his breach of duty to his principal in paragraph 49:

“49. I think the test for liability as submitted by Mr Yin is too narrow. 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.”

39.  In fact, Fred did convey D’s request for a new cheque for initial deposit made payable to V’s lawyer in exchange for the cheque held by V and did eventually report the lawyer’s name to D, however, about 5.5 hours later than the scheduled meeting at 12:30 pm.  Unfortunately D has already decided not to proceed with the transaction earlier on and D decided not to follow up the exchange of the cheque with V. 

40.  Strictly speaking, Fred could be regarded as failing to comply with D’s instruction to provide the name of V’s lawyer within the prescribed time.  However, whether such a breach is serious enough to deprive the agent of his commission is another matter.

41.  Such a breach is not of a character which renders “the performance of the contract wholly different from what was anticipated”. It does not involve a destruction of the substratum of good faith and fidelity.  Fred may be criticised for being sloppy, failing to inform D of the postponed meeting on 27 August or even for his manner but such omissions or faults fall short of the common examples of repudiatory breaches such as dishonesty, taking secret profits, taking bribe and failure to disclose material facts given in the above case.

42.  In view of the above, I do not consider Fred’s failure or omission on 27 August 2012 are serious breaches of duties that go to the root of the contract, or otherwise justify D’s repudiation of the liability to pay commission.

Conclusion

43.  As I do not find Fred guilty of breach of duties owed to D in this transaction at all, D is not entitled to refuse to pay P commission. D is thus liable to P for the liquidated damages of HK$75,550 pursuant to clause 12 of the PSPA, due to D’s failure to complete the transaction. 

44.  It follows that the D’s counterclaim must fail in the absence of any breach of duties by Fred. After all, even if Fred may not be a very good agent to D, it appears that D has overreacted to abort the transaction and remained unmoved even when V’s wife wrote to D on 28 August 2012 asking for resolution of the problem. It is regrettable to see a property transaction ends up in litigations.

Costs

45.  As I find in favour of P, I make the usual order that costs follow the event.

Order

46.  For the reasons aforesaid,  I make the following order:

(i) judgment be entered in favour of the plaintiff for the sum of HK$75,550 with interest at judgment rate from the date of the writ until payment;

(ii) the defendant’s counterclaim be dismissed with costs to the plaintiff;

(iii) there be order nisi that costs of the whole action be to the plaintiff with certificate for counsel, to be taxed if not agreed; and

(iv) the defendant’s own costs to be taxed in accordance with the Legal Aid Regulations.

47.  Lastly, I wish to express my gratitude to both counsel for their assistance to this court.