VIGERS HONG KONG (a firm) v. BANK OF CREDIT AND COMMERCE HONG KONG LTD AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is a claim for commission by estate agents against their principal. The Plaintiffs being estate agents and their principal the Defendants. The premises concerned are the 21st floor in Admiralty, Tower One.

2. In late 1985 the Defendants occupied part of the 8th floor of that Tower as tenants. It became known that they were likely to purchase the 20th to the 24th floors and that some floors or part of floors may become available on the market for sale or letting.

3. Mr. Foxall, the manager of the Plaintiffs’Commercial Department got in touch with Mr. Wong, the Assistant General Manager Operations for the Defendants. They knew each other. They had dealt with each other before. In due course it was agreed that the Plaintiff should become non-exclusive agents of the Defendants for letting of the 8th floor on the usual terms.

4. Interest was concentrated in December 1985 on the 8th floor and Mr. Foxall interested the Kyowa Bank in the premises.

5. So far as the 8th floor was concerned it came to nothing but in December it was known that the Defendants' purchase of the 20th to the 24th floors was likely to take place. Nothing was certain but the Defendants were prepared to entertain interest.

6. In particular, at that time it was not known what floors would be required by the Defendants if they managed to purchase them and what floors would then come on to the market for either sale or letting.

7. When the sale and purchase agreement for those floors was about to be signed on the 10th January, Mr. Foxall was moving to get ahead of the field. On the 13th January he wrote to Mr. Wong for the Defendants and he referred to a telephone conversation he had on 10th January. He wrote about the 20th to the 24th floors saying that he had a tenant interested in leasing 10,000 sq. ft in the Tower.

8. The following day he spoke to Mr. Wong and told him that it was the Kyowa Bank that was the interested party. On the 16th January an inspection was arranged. The inspection took place. Four people from the Kyowa Bank attended together with representatives of the Defendants and the Plaintiffs inspection took place, not only of the 8th floor but of other floors including the 21st floor. After the inspection the 8th floor was still the front runner so far as Kyowa Bank were concerned because Kyowa were interested in taking part of a floor but not the whole floor and the Defendants were not prepared to let less than the whole floor of the 21st floor.

9. There is no dispute between the parties that the Kyowa Bank was introduced first in respect of the 8th floor, later in respect of the 21st floor. The letter of the 31st January refers to the aspect.

10. There was an interesting exchange between the parties in respect of another client, a Japanese company, Marubeni. Marubeni were interested in buying a floor and by a letter of 4th February Mr. Foxall introduced or tried to introduce Marubeni as such to his principal represented by Mr. Wong.

11. On 6th February, Mr. Wong wrote to the Plaintiffs saying that the introduction of Marubeni was rejected because the Defendants had been negotiating with Marubeni in connection with the 20th floor since December. It is clear from that letter that the Defendants were accepting interest in those floors from about December onwards and Mr. Wong went on to express his appreciation to the Plaintiffs for looking for interested parties in the premises and he also said that he was going away on holiday and that Mr. Abbas, the General Manager would be dealing with the matter.

12. On 26th January there was a meeting at the Defendants. It was decided that the 21st floor should be let; that the whole floor should be let rather than part of it; and that the lease should be a short one in case the Defendants wanted to occupy in the future.

13. Mr. Foxall in the meantime had not given up so far as the Kyowa Dank were concerned. So far as leasing part of a floor was concerned he said (rightly) that parties had changed their minds. That was shown to be the case by later events.

14. Thereafter during February I am satisfied that Mr. Foxall was in frequent contact with Mr. Wong until that is the 6th February. Thereafter matters were in the hands of Mr. Abbas. Immediately on Mr.Wong's return, possibly the very day of his return, 26th February, the tenacious Mr. Foxall telephoned him. The 8th floor by now was passing out of the picture and he told Mr. Wong that the Kyowa Lank was still interested in the 21st floor but not in the whole floor. Mr. Foxall rang and told Mr. Wong that the Kyowa Bank would be interested in 15,000 feet on that floor at $16 per sq. foot for a term of over four years but with the internal partitions removed.

15. Those facts are not in dispute.

16. Mr.Wong replied that the whole floor only would be let, that the most likely it would be a two plus two, year lease, without the removal of the partitions. (See paragraph 15 of the Defence.)

17. That offer was not put into writing. There was no point. I am satisfied that the custom between the parties was that offers were only put into writing if they were sufficiently near to a likely agreement to be worth putting into writing for the purposes of final negotiations.

18. There is a suggestion in the Plaintiff's letter of 17th March that Mr. Foxall contacted Mr. Wong further on 28th February and Mr. Wong repeated the Defendants' stand. There is no evidence of this conversation on this date. But I do accept that Mr. Foxall never gave up. It is likely on the balance of probability that there was at least one further conversation on the same lines as the conversation on 26th February, after 26th February.

19. Mr. Abbas was senior to Mr. Wong. Before 5th March he or someone else on behalf of the Defendants had negotiated with a prospective tenant to take about 6,400 sq. ft on the 2lst floor leaving 13,600 sq. ft available. By 5th March, another agent of the Defendants, Richard Ellis had obtained an offer on their behalf and put it into writing for the 13,600 sq. ft. That offer was from Kyowa Bank. It can be seen in the letter dated 5th March, from Richard Ellis to the Defendants. Strangely the offer obtained by Richard Ellis on behalf of the Defendants was (on the face of it) a less good offer than had been made over the telephone by the Plaintiffs because only $15 per square foot was offered.

20. The date when the Defendants changed their mind to let only part of the 21st floor is not known. Neither Mr. Abbas, nor anyone else who knows, has been called to give evidence about that very important change of mind or about the negotiations conducted by Richard Ellis. The inference is that this decision was made before 5th December. Negotiations were unlikely to reach the stage indicated by the offer letter of 5th March in one day - with two parties, each for part of the floor with matching tenancies.

21. The letter of 5th March was handed by Mr. Abbas to Mr. Wong for his views and for him to carry out further negotiations. Strangely, having seen the terms of that offer he never returned to Mr. Foxall. Had he thought about the matter he would have appreciated at once that Mr. Foxall had offered him better terms for Kyowa Bank than were being offered by Richard Ellis.

22. By 10th March the deal offered by Richard Ellis on behalf of Kyowa Bank was finalised. The name of Kyowa Bank had been disclosed by that time. It is likely, I believe, that it was disclosed before the 10th but that is not significant for the purposes of this decision.

23. Mr. Wong never gave any consideration to the fact that the Plaintiffs had interested Kyowa Bank in the 21st floor on their behalf and had introduced them earlier than Richard Ellis. His only concern was that he should make the deal as soon as possible and follow the instructions that he had been given by Mr. Abbas. Therefore they finalised the agreement and paid Richard Ellis the standard commission of one month's s rent.

24. It is accepted by both parties that a non-exclusive agent acting for a landlord is entitled to commission in the absence of specific agreement (l) if the property is leased to a tenant; (2) who has been introduced by that agent; and (3) when that agent's services are the effective cause of that letting. Those are the usual terms implied in an agency contract of this kind and is agreed between the parties that they were implied in this letting.

25. The Plaintiffs' alternative contention is that they are entitled to commission if their services were simply an effective cause rather than the effective cause. This is in issue.

26. Whereas I am prepared to accept that in certain cases such a term will be implied as indeed the English Court of Appeal was prepared to accept in certain cases:- See Brian Kopard & Co. v. Fair View Estate investment Ltd reported in the Times Newspaper 18th April 1987 following a line of authorities cited by Mr. Chatwin, Counsel. Whether such a term is to be implied depends upon the particular circumstances and do hot think that term is to be implied in all cases In any event, it is not necessary for me to decide the point in this case as will become clear.

27. As I have said, there is no dispute that the Plaintiffs introduced Kyowa Bank to the Defendants as a prospective tenant for the 21st floor. The issue is whether after making the introduction the Plaintiffs' services were the effective cause of the letting which later took place. Put another way were the services of the Plaintiffs the causa causans of the lease? I turn to this issue.

28. The principle is clear. The decision is one of fact. A number of cases have been cited to me which are examples of the application of that principle to particular facts in particular cases.  This branch of the law (and regretably many others) is deviled by a number of reported cases which are reported in relation to particular facts, the principles not being in dispute. Such cases are not of assistance to a Judge; they may well be of interest to those who have business in the particular fields to which the cases relate, such as estate agents. No doubt that is why one finds cases reported in the Estates Gazette.

29. Turning to the issue. The Defendants contend first, that the Plaintiffs did not succeed in obtaining terms from the Kyowa Dank which were acceptable to the Defendants and they submit that the conversation of 26th February was only an enquiry.

30. Secondly, they contend that authority to negotiate with the Kyowa Bank on the proposed terms was terminated on 26th February or thereabouts, when Mr. Wong rejected then. If so, then the agency was at an end. The chain of causation was broken and that will be fatal to the Plaintiffs' claim.

31. Thirdly, the Defendants say that the Plaintiffs never got close to concluding a deal. No written offer was ever submitted and there was nothing concrete presented to the Defendants upon which further negotiations could take place.

32. Finally for these purposes, say the Defendants the terms which Richard Ellis obtained and which were finally agreed were so materially different from the offer made on the telephone that the Plaintiffs' services could not be described as the effective cause of the letting.

33. On the evidence I have heard, I am satisfied that the Plaintiffs' services were the effective cause of the lease which was concluded for this part of the 21st floor between the Defendants and the Kyowa Bang. It is not in dispute the Plaintiffs were appointed non-execlusive agent for the letting, and in any event, it is absolute clear on the evidence. The Plaintiffs' services were not only introducing the Kyowa Bank but they interested the Kyowa Same by their efforts, particularly the efforts of Mr, Foxall, first of all, in the 8th floor but when that was out of the picture in other floors: Mr. Foxall kept in touch with the Bank and the Defendants in the hope that a deal would come about. This was particularly after the purchases on 10th January and the letter which followed a telephone conversation on 13th January. On the 14th January the Defendants were told the interested party was the Kyowa Bank; obviously an acceptable tenant to the Defendants. On the l6th January the Plaintiffs brought representatives of the Kyowa Bank and showed them round the premises including the 21st floor. Mr. Wong says he cannot remember the inspection of that floor or the 20th floor. I find it remarkable that he cannot remember that when those who visited continued in negotiation and later took the tenancy but I do not find Mr. Wong was lying about the matter. Indeed it perhaps does not matter whether he remembers it or not, the visit certainly took place.

34. What is more, on the evidence I have heard, it was the only time that this tenant visited and inspected the premises. When the decision was made on 26th January by the Defendants as to how the floors were to be used, have no doubt that decision was made in the light the knowledge they had about the interest in various floors.

35. On 31st January there was a letter from Mr. Foxall to Mr. Wong. This was shown to Mr. Abbas. It demonstrates that the Plaintiffs were still making efforts to keep Kyowa Sank interested on the Defendants' behalf. These continued, as I have said, to the 26th February and after until the terms which I have described and which appear in paragraph 15 of the Defence were offered on the telephone. An introduction and efforts made to keep eventual tenants interested are important factors and they are what agencies are retained to do.

36. The terms offered were offered orally. This is not significant. The fact that they were not put in writing was entirely because of the Defendants' attitude at that time and their refusal to consider the letting of part of a floor. There was an offer there and it remained open, I am satisfied, as a basis for negotiation if the Defendants sought at any time to pick it up. The refusal of that offer was not in any way a termination of Mr. Foxall's authority to negotiate. There is no reason to think that was a termination. It was simply that at that time the Defendants were not prepared to let the whole of the floor. A decision which was reversed very shortly after. How shortly remains known only to the Defendants. No one has come here to give evidence about that matter to assist the Court.

37. The Defendants knew by 26th February that there was an acceptable tenant introduced by the Plaintiffs who had been keeping that tenant interested and who had made an offer but not one acceptable or negotiable at that time. Once the Defendants had changed their mind by not insisting upon letting the whole floor, the terms of the offer were acceptable provided they also changed their mind about the length of term. There also remained the question of the removal of the partitions. On all these points the Defendants changed their mind within a few days certainly by 10th March. The time scale is significant.

38. As I have indicated there is no evidence before me as to how Richard Ellis, the Kyowa Dank, Mr. Abbas and some other tenant for part of the floor came into contact and put the initial offer of the 5th of March together.

39. A comparison of the terms offered on 28th February by the Plaintiffs and those agreed between Kyowa and the Defendants show that very shortly after the offer was made an area of less than the whole floor was acceptable to the Defendants further that the term of more than 4 years was acceptable - three plus two. Only the removal of the partitions remained for negotiation.

40. I interject that when the offer of a more than four years term was made on the telephone, I am satisfied it would be understood by all the parties who knew about the market that this was not an offer of four years without any rent review. The parties would know that there would have to be an agreement for a rent review sometime during such a lease and that both parties would agree to it if the lease was to be for more than four years.

41. So far as the removal of the partitions are concerned, I accept the evidence of Mr. Foxall and Mr. Walker that in a lease of this nature the removal of the partitions was not a major matter. A tenant Bank moving in would inevitably have a great deal of expense in putting the premises into the condition in which they could be used and in spite of Mr. Wong's evidence of the indication he had received about the cost of removing partitions and the delay that would cause. This was a matter which was to be and would be part of the final negotiations and one of the important matters in that would be what rent free period would eventually be agreed. In my judgment the Defendants were exaggerating the importance of this term.

42. The fact that another agent, or the landlords themselves, took over the negotiations does not necessarily break the chain of causation unless the final agreement was so significantly and radically different that it cannot be regarded as a lease brought about by the claiming agent.

43. So I am satisfied that after the introduction, the work keeping Kyowa interested and showing them round and maintaining their interest required great effort and tenacity on the part of the Plaintiffs. I am satisfied that the terms offered on 26th February and the terms which were eventually concluded between Kyowa and the Defendants were not different in any major way which would break the chain of causation. Variations between offer and final acceptance and conclusion of the deal are to he expected and it was to be expected that those negotiations would deal with the partition point. It was not likely ever to be a stumbling block and now was it a stumbling block in fact.

44. It is astonishing that when the Defendants changed their mind about the area they were going to let that they did not go back to the Plaintiffs and more so when less good terms were offered by Richard Ellis. There is no satisfactory explanation of that. I do not accept Mr. Wong's explanation that it was because it was not in writing as a valid explanation. It maybe that he simply took that as an excuse not to return. I must not speculate. It may be that there was a breakdown of communications in the Defendants. Once Mr. Wong was out of the picture for a short time and Mr. Abbas took over there may have been a misunderstanding and Mr. Wong may not have put down a note of the offer made on the telephone. I do not know. In these proceedings it will never be known because Mr. Abbas did not give evidence.

45. In order to succeed, it is not necessary for the Plaintiffs to show that their services were the effective cause of the lease on the precise terms that the lease was concluded. What is necessary for them to show is that they were the effective cause of the letting is a matter of fact and of degree.

46. If after 26th February the Defendants (having changed their mind) then negotiated themselves with the Kyowa Bank and concluded the deal that was eventually concluded, it would have been unrealistic and absurdly technical to suggest that the Plaintiffs were not the effective cause. The introduction of another agent does not alter that situation. The effect was that the Defendants themselves at that time prevented the deal being negotiated and concluded. There was an offer there to take up and eventually, in my judgment, they did take up such an offer. The original introduction, the Plaintiffs' efforts in doing that; in showing the Kyowa Bank round; in keeping up the interest; in making the terms of the offer; the rejection and then the almost immediate change of mind; the similarity of the final terms negotiated and the time scale of all that indicate to me that this is to be regarded as a continuous negotiation with the Kyowa Bank. All this leads to the same conclusion that their efforts were the effective cause of this letting and I reject the Defendants' contentions in this matter.

47. When the Defendants refused to pay commission, Mr. Foxall for the Plaintiffs rounded on the Kyowa Bank and claimed commission from them. As he conceded in cross-examination, it was a 'try-on'. Fortunately the tenant was made a stern stuff and rejected this out of hand. The Plaintiffs to their credit did not persist.

48. It was not a matter for pride and Mr. Foxall and Mr. Walker were obviously ashamed of what had been done. They did not (to their credit) tried to hide it, and I treat this matter for what it was - a shameful reaction to the Defendants unjustified refusal to pay, which was not persisted in. It does not affect their entitlement to commission from the Defendants. The payment of commission by the Defendants to Richard Ellis was a matter of agreement between them. It is not a matter with which I am concerned. I do not know full basis of it and it does not call for any decision from me. It is irrelevant to the question to whether the Plaintiffs are entitled to the commission from the Defendants. On the grounds that I have set out I am satisfied that the Plaintiffs are entitled to commission; entitled to the customary usual commission which is agreed between the parties of one month's rent. There will be judgment for the Plaintiffs against the Defendants in respect of that sum which is $217,600.