XCHRX Ian Cullen & Associates v. DTZ Debenham Tie Leung & Co. Ltd.

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2317 OF 2001

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J U D G M E N T

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1. This is an Order 14 summons whereby the plaintiff seeks judgment against the defendants in the sum of $457,500 being, according to the plaintiff, his half share of an estate agent's commission earned as joint sole agent with the defendants for the vendor of development land in San Po Kong following the sale of that land in May 1999.

2. The background to this matter is as follows. The plaintiff, Mr Cullen, is a Chartered Surveyor in independent practice. The defendant company is a well-known firm of local estate agents, surveyors and valuers who operate a substantial practice and who have enjoyed much success, particularly during the boom years of the property market in the mid and late 1990s.

3. In 1993, the plaintiff was engaged by the Heung To Middle School to seek a change of land use in respect of a property at 97, Po Kong Village Road, San Po Kong, Kowloon. This property was designated for use as a school and the plaintiff was instructed to obtain a land use change and town planning approval for high-rise commercial and residential development. After much effort and discussion with a number of Government departments such approval was obtained on 13 July 1995.

4. The school then instructed the plaintiff to process their application, for the necessary surrender of the original lot of land with its school use restriction, for a re-grant of the same land with a Permit for Commercial and Residential Development. He was able to obtain this for the school on 15 October 1997. The process of surrender and re-grant required the payment of a large premium to the Government which together with the cost of developing the site was well beyond the school's financial resources. The school informed the plaintiff that it was interested in selling the site to a developer with the benefit of the planning consent. So much does not appear to be in dispute between the parties.

5. In late 1996, the plaintiff found a potential buyer, a company which was part of the Lippo Group of Companies. At about this time the school also informed the plaintiff that it had been in discussion with the defendant concerning the sale of the property. There is no doubt that the defendant's involvement in the possible sale of the property started in September 1996. Page 78 of the Bundle is a letter from the defendant to the school asking for further information from the school regarding the Change of Use permit. Thereafter the defendant sent out many letters and faxes to most of Hong Kong's best-known property developers informing them of this property as a property which offered an excellent opportunity for development. These letters are from October 1996 to February 1997 and appear from pages 81 to 125 of the Bundle.

6. Page 229 of the Bundle is a letter from the plaintiff to the school which is dated 26 November 1996 and which is an invitation to the school to appoint the plaintiff to market the property on the school's behalf by approaching leading property developers. The service proposed is described at page 230 as follows:

"Thus comprehensive, professional services are proposed for marketing, negotiating and concluding a joint venture development agreement on terms most favourable to Heung To Middle School."

The fee payable for these services would be 1 per cent of the site value. The letter contains a space for the school to confirm such instructions which at that stage it did not do.

7. On 5 December 1996 (page 227), the plaintiff sent the school a further similar letter soliciting the school's instructions. This too did not produce the hoped for response.

8. By 5 February 1997, the defendant who had also been seeking a purchaser, was able to write to the school to say that it had found the Hon Kwok Property Investment Company and Wah Tei Company who were prepared to purchase the property. The defendant's agency fee would be 0.5% of the completion price (premium not included).

9. The next material step occurred on 11 November 1997 at a meeting at the offices of Mr T K Tsui, the school's architect who had been engaged to advise on the development. The meeting was attended by the plaintiff and senior members of the defendant's, notably Mr Mark Hahn and Mr Tony Lo. The plaintiff was still anxious to be appointed the school's agent on the prospective sale. For its part, the responsible officers of the school were far more comfortable dealing with the defendant's staff in Cantonese rather than with the plaintiff. Up till then, much of the correspondence and general liaison between the school and the plaintiff was through Mr Tsui. According to the plaintiff, the school appreciated the work already done for it by him in obtaining the change of use consent and it suggested, through Mr Tsui, that the plaintiff and the defendant should co-operate as joint agents in the sale.

10. With that in mind, there was a meeting the following day at the defendant's offices between Mr Hahn and Mr Lo of the defendant, and the plaintiff. According to the plaintiff, an agreement was arrived at whereby the parties agreed to act as joint sole agents for the sale of the property and that they would share all the fees received from the school, the vendor, consequent upon the sale of the property. That agreement was then committed to writing on the defendant's letterhead. It was drafted by the plaintiff and signed by him and by Mr Hahn as a director of the defendant. It is dated 12 November 1997.

11. Given its fundamental importance in the action, I shall set it out in full:

"The following has been agreed by the parties at the meeting:

1) As from the date herein stated, both Ian Cullen & Associates (IC) and CY Leung & Company Limited (CYL) agree to act as the joint sole estate surveyors/agents for the sale of the subject property until the property is sold.

2) That IC and CYL shall collectively market the property and work in close collaboration and ensure that there is no overlapping in the marketing activities.

3) That IC and CYL shall jointly negotiate and analyse the terms of offer for the purpose of reporting and advising our mutual client, Heung To Middle School (the client), owner of the subject property.

4) To conclude the sale on terms as finally instructed by the client and all ancillary and relevant services relating to the sale.

5) That IC and CYL hereby agree to share equally all fees received from the client in respect of the above exercise and services. However, any fees received from any parties apart from the client shall not be covered by this joint fee sharing arrangement."

12. What then followed is that the property was eventually sold to a subsidiary of Hon Kwok, Golden Country Development Limited. The correspondence which relates to this appears at pages 140, 111, 135 and 146 with the final assignment taking place on 31 May 1999, see pages 43-50 of the Bundle, there having been an agreed deferment of the conveyance to suit the purchaser upon payment of a further deposit to the school.

13. Consequent upon the completion of the sale, the school paid the defendant a commission representing 0.5% of the sale price of $183 million, being $915,000. The plaintiff then required the defendant to pay him his share of that commission, relying on the agreement of 12 November. The defendant's response appears at page 55. It is dated 17 June 1999 and is in these terms:

"I refer to your letter of 14 June 1999 and our subsequent telephone conversation. I have consulted with my fellow colleagues and was advised that it is against our company's policy to collect fees up front for other agents. I have also reviewed our co-operation agreement dated 12 November 1997 which only covered the sharing of fees issue and there was no onus on either party to collect fees for the other. I am therefore returning to you a copy of your letter original and the debit note Ref. IC/KLM/P179, both dated 14 June 1999. I apologise for any inconvenience that it may have caused. Thank you and I look forward to our possible future collaborations."

That letter was signed by Mr Hahn.

14. This is an important letter to which I must make further reference presently, because it represents the defendant's first reaction to the agreement of 12 November 1997.

15. In order to complete the factual background, I should also indicate that the plaintiff was paid a fee of $457,500 by the purchasers, although his entitlement to such payment is doubted by the purchasers who say that the payment was made to avoid any dispute with the plaintiff who could be of use to the purchasers on the technical aspects of the planning consents, and that, in any way, this amount was modest compared to the $183 million paid by them to purchase the property. The rights and wrongs of that payment have no bearing on the issues to be decided in this action. I merely refer to it as part of the background.

16. The last matter to mention is that the plaintiff then attempted to obtain payment from the school itself but their solicitors, by letter dated 6 August 1999, page 213, refused to pay any commission, their case being that so far as they were concerned their agent was the defendant who they had paid in full and that they were not concerned with, and had no knowledge of, any fee sharing agreement between the plaintiff and the defendant. So much for the material facts.

17. The plaintiff's case is simplicity itself. It is submitted by Mr Beukema on his behalf that by virtue of the agreement in writing dated 12 November 1997, the half fee earned on the sale of this property is now due to him and that there can be no answer to that liability. The parties agreed between themselves to be joint sole agents for the sale; the sale has taken place; the full commission of $915,000 being 0.5% of the sale price of $183 million has been paid by the school, as vendor, to the defendant, who must now account to the plaintiff for his half share of that. The fact that the school now says that the plaintiff was never appointed as its agent is neither here nor there. This is an agreement between the parties alone. The school is not privy to that agreement.

18. Faced with this agreement, Mr C Y Li who appears for the defendants, has made several points which he submits taken individually and a fortiori collectively, clearly demonstrate that there are triable issues between the parties which can only be resolved in a trial. He therefore submits that the defendants must be given unconditional leave to defend.

19. Apart from the proper construction of the agreement to which I must refer presently, Mr Li draws attention to disputes of fact which simply cannot be resolved on conflicting affirmation evidence. The most important relates to the plaintiff's relationship with the school vis-à-vis the sale of the property, as opposed to the previous technical work, which the plaintiff had undoubtedly been instructed to carry out and for which he has been separately remunerated.

20. The school say that only the defendants were appointed as their agent on the sale and not the plaintiff. The plaintiff says, as to fact at all events, that the school through its architect, Mr Tsui, encouraged the plaintiff and the defendants to get together and work out something between each other as to how they were to liaise in getting the property sold and that as a result of this encouragement they met the following day, 12 November, and signed the agreement now sued on by the plaintiff. As to the school's motive for taking that course, there can be no doubt that their preference lay with the defendants and its staff, who were bigger players in this field, and to whom they could speak in Cantonese, but they also felt some debt of gratitude and perhaps moral obligation to the plaintiff for his previous good work which vastly enhanced the value of their property.

21. There can be no doubt that the issue of whether the school had appointed the plaintiff to act as its agent cannot be resolved at this stage. If anything, the balance of the evidence favours the defendant, having regard to what the school's solicitors wrote to the plaintiff when he submitted his fee note, and having regard to the school's non-responsive attitude to the plaintiff's proposals in writing suggesting that they should appoint him (see pages 229-231 and 227-228).

22. Sensing his difficulties in this regard, Mr Beukema submits that even if the school had not appointed the plaintiff as its sales agent, the defendant's liability to the plaintiff arises quite independently, from the agreement between them (page 35). He says that agents frequently will arrive at a private agreement between themselves to share fees on a sale. That of course is right but their liability inter se depends on the terms of the particular agreement.

23. As to that, Mr Li makes a number of points. Firstly, he submits that it is the plaintiff's pleaded case that the plaintiff had been appointed by the school as joint sole agent with the defendants to sell the property (see paragraphs 5 and 6 of the Statement of Claim, page 4) and where that is the pleaded case and in circumstances where there is a real issue of fact to be tried as to this, judgment should not be entered. For the proposition that judgment can only be given on the pleaded case he relies on the case of Super Electric Motor Limited v Pi Chung Shing CAV 225/94 per Bokhary JA. In that case, the Court of Appeal had no difficulty in setting aside summary judgment in circumstances where the basis of the judgment appeared to differ from the plaintiff's pleaded case. And so where the thrust of the plaintiff's case is that by virtue of Mr Tsui's indication on 11 November 1997 that the parties should liaise and that the plaintiff was indeed appointed sole joint agent, but where, as I have found that if anything, the balance of the evidence on paper at all events, favours the defendant's version of events that they were the sole agents, it would be wrong to enter judgment. So goes Mr Li's submission, which I feel constrained to uphold.

24. The next substantial submission is that even if one takes this agreement at face value, there is a triable issue as to whether the plaintiff has earned that commission. He submits that the present evidence as filed in court is all one-way and it is to the effect that the defendant made all the going in procuring and effecting the sale to the eventual purchaser. At the very least, he submits, that there is so much that is generally in dispute that the issue needs to be tried in order to determine whether the plaintiff is entitled to half or to anything at all.

25. The question then becomes, whether the mere making of the agreement without more, would entitle the plaintiff to a half share of the commission. On the present evidence, there certainly is a genuine dispute as to whether the plaintiff did anything to bring this sale about to the eventual purchaser. He could therefore only succeed in the face of such a factual dispute if, as a matter of law, the mere making of the agreement is sufficient. In other words, could he just stand back, do nothing and let the defendant do all the work and yet collect a half share of the commission?

26. I consider that this proposition of law cannot be divorced from the facts of the case so as to enable me to provide a certain answer favourable to the plaintiff. There is a genuine issue which a trial judge must determine as to who did what before a correct answer can be provided as to the parties' respective rights and liabilities. This therefore must also provide a reason for not entering summary judgment.

27. Mr Li also contends that the agreement is susceptible to rectification (see page 12 and 13 of his skeleton argument) but in view of the grounds which I have already upheld which justify a trial, I find it unnecessary to decide this point. In these circumstances, I must now go on and decide whether I should give unconditional leave to the defendant or whether I should impose terms such as to require payment in of all or part of the claim as a condition of defending. I can only do so if the reasons put forward on behalf of the defence constitute a shadowy defence.

28. There is no doubt that the agreement, although perhaps capable of being more precisely and fully expressed, signed as it was on the defendant's behalf, is plain in its intent and both directors may find their time in the witness-box at the trial an uncomfortable one, particularly as the initial response to the claim in the defendant's letter of 17 June 1999 (page 55) is pretty lame when compared to the sort of grounds for rejecting liability now advanced on the defendant's behalf by Mr Li. But notwithstanding these matters, it seems to me that the defendants are entitled to unconditional leave.

29. The two grounds which have been identified by Mr Li are substantial against a background where the evidence underlying these points is clearly debatable both ways. These matters will need to be tried and the issues of fact resolved after the evidence has been tested by examination and cross-examination of the witnesses. The defendants must therefore have unconditional leave and I will now go on and give further directions as to the filing of the defence and any other directions which may be helpful in advancing this case.

(Discussion re costs)

30. I think the plaintiff was entitled to have had a go here. There is, after all, an agreement which, for my part I found to be clear in its intent, although of course there are matters of evidence which I have sought to analyse in the course of my ruling which have caused me to give the defendants unconditional leave. So I do not think this is one of the more extreme cases where it can be said that the plaintiff should not have come via this route and so the appropriate order is one of costs in the cause.

31. Leave to defendants to file defence within 28 days.

32. Discovery by list 14 days after close of pleadings. Inspection 7 days thereafter.

33. Witness statements to be mutually exchanged 56 days from close of pleadings.

34. Costs in the cause.