ADVANCED CHEMICALS LTD. v. CENTALINE PROPERTY AGENCY LTD.

DCCJ 16630/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 16630 OF 2000

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JUDGMENT

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1. This action arose out of an aborted property transaction. The Plaintiff, through the Defendant as its estate agent, made an offer to purchase a property known as Suite 701-706, 7th Floor, Tower B, New Mandarin Plaza, 14 Science Museum Road, Tsimshatsui East, Kowloon ("the Property") from the China State Bank, who was the mortgagee of the Property ("the Vendor"). In making the offer, one Mr. Li Hsien Chen of the Plaintiff ("Mr. Li") signed a provisional sale and purchase agreement for the proposed sale on 6 April 2000 ("the Provisional Agreement"), and handed over to the Defendant a cheque in the sum of $230,000 ("the Cheque") as the initial deposit for the purchase of the Property. It is the Plaintiff's case that the Defendant's representatives orally agreed that the Cheque would only be handed over to the Vendor with the prior consent of the Plaintiff ("the Oral Agreement"). However, in breach of that Oral Agreement, the Defendant handed the Cheque over to the Vendor without first notifying the Plaintiff.

2. The Vendor signed the Provisional Agreement on or about 10 April 2000, with an amendment to defer the date for the signing of the formal agreement from 12 to 17 April 2000. On 12 April 2000, Mr. Li of the Plaintiff learnt about the proposed amendment, and that the Vendor had presented the Cheque for payment on 10 April 2000. Mr. Li and his business partner were furious about the handing over and the presentation for payment of the Cheque, and they refused to proceed with the purchase of the Property. The Plaintiff then demanded the Defendant to approach the Vendor for the return of the initial deposit. However, the Vendor took the view that there was a binding agreement for the sale and purchase of the Property, and it refused to return the deposit back to the Plaintiff. The latter therefore brought the present action against the Defendant to claim for damages for breach of the Oral Agreement in the said sum of $230,000.

3. It is also the Plaintiff's case that the Defendant's representatives orally assured Mr. Li on 6 April 2000 that: (i) the Defendant would arrange the Vendor to execute the Provisional Agreement on or before 8 April 2000; and (ii) formal agreement had to be executed by the Vendor and the Plaintiff on or before 12 April 2000. As the Defendant was in breach of these terms of the oral agreement, the Plaintiff is also relying on the same as part of the claim against the Defendant.

4. The Defendant does not dispute that their staffs had handed the Cheque over to the Vendor, but it seeks to deny liability on the following grounds:

(i) the Defendant's representatives had never given the oral assurances to Mr. Li on 6 April 2000 as alleged by the latter. On the contrary, one Mr. Ho Yip Wing of the Defendant ("Mr. Ho") explained to Mr. Li that the Defendant would immediately hand over the Provisional Agreement and the Cheque to the Vendor, as it was the practice for sale of mortgaged property;

(ii) the Plaintiff had waived the breach of the other terms mentioned in paragraph 3 above, as the Plaintiff did not ask the Defendant to withdraw the offer after the alleged agreed date for the execution of the Provisional Agreement on 8 April 2000;

(iii) the Plaintiff's loss was caused by the Vendor's wrongful refusal to return the initial deposit, and not by the Defendant's breach of the Oral Agreement; and

(iv) the Plaintiff had failed to mitigate its loss, as it should have brought an action against the Vendor for the return of the initial deposit first before proceeding with the present action against the Defendant.

The Defendant would only have to rely on the second to the fourth grounds of defence if the court were to adopt the Plaintiff's evidence.

5. As the Plaintiff had not initialed the amendment relating to the date for the execution of the formal agreement, it is common ground that there was no binding agreement between the Plaintiff and the Vendor relating to the sale of the Property.

Evidence in the trial

6. Mr. Li testified on behalf of the Plaintiff. According to his testimony, he received an advertisement by fax from the Defendant on 5 April 2000 relating to the Property, and on the same day he inspected the Property with one Ms. Fung Chun Ying of the Defendant ("Ms. Fung"). On the following day, Ms. Fung and Mr. Ho of the Defendant attended the Plaintiff's office. During that meeting, Mr. Li signed the Provisional Agreement and handed over the Cheque to Mr. Ho. According to Mr. Li, he gave the Cheque to the Defendant so that the latter could persuade the Vendor that the Plaintiff was a serious purchaser, as the Plaintiff had done in some of the cases in the past. Mr. Ho had never explained to him that it was the practice, in the case of a mortgagee's sale, to hand over the cheque for initial deposit to the mortgagee. On the contrary, the Defendant's representatives assured him that the Cheque would not be handed over to the Vendor without Mr. Li's prior consent. According to Mr. Li, he would not have approved the Cheque to be handed over to the Vendor before the making of a binding agreement.

7. Mr. Li admitted that the Plaintiff had brought another action against the Defendant in 1998 for breach of duty as an estate agent. However, he emphasized that he did not have a grudge against the Defendant, otherwise he would not have engaged the Defendant to negotiate for the Plaintiff for the purchase of the Property in the present case.

8. The Plaintiff engages in the business of supplying chemical products to government departments and various other consumers. In the past twenty odd years, Mr. Li and his partner have purchased more than 40 properties in Hong Kong. All these properties are for long-term investment and they have not sold any of them. Throughout the years, Mr. Li and his partner have not defaulted in the completion for the purchase of any properties they committed to purchase.

9. The main witnesses for the Defendant were Ms. Fung and Mr. Ho. According to them, the first inspection of the Property actually took place on 6 April 2000, during which Mr. Li signed the form engaging the Defendant as his agent for the proposed purchase of the Property. On that occasion, Mr. Ho also explained to Mr. Li that it was the practice, in the case of a mortgagee's sale, to send the cheque for the initial deposit to the mortgagee bank for consideration. They denied that they had ever given the oral assurances as alleged by Mr. Li. After that meeting, they handed over the Provisional Agreement signed by Mr. Li and the Cheque to the Vendor for consideration.

10. On 10 April 2000, the Defendant learnt that the Vendor had signed the Provisional Agreement with an amendment to postpone the date for the signing of the formal agreement from 12 to 17 April 2000. Ms. Fung therefore notified Mr. Li about the same. Later on the same day, they went to inspect the Property for a second time, during which Mr. Li confirmed that he had no objection to the postponement of the date for the execution of the formal agreement, and Ms. Fung also informed Mr. Li that the Vendor would soon present the Cheque for payment.

11. Later on 12 April 2000, Ms. Fung and Mr. Ho attended the Plaintiff's office. They heard from Mr. Li that his partner was not happy about the presentation of the Cheque for payment by the Vendor, and the Plaintiff therefore did not intend to proceed with the transaction. After the meeting, Mr. Li called them and demanded them to get back the initial deposit from the Vendor. They made such an attempt but without any fruitful result. During cross-examination, both Ms. Fung and Mr. Ho could not think of any reason why Mr. Li suddenly changed his mind and did not want to proceed with the deal.

12. The Defendant's other two witnesses were the supporting staffs under its employment at the material time. Their testimony largely supported the version of event as testified by Ms. Fung and Mr. Ho. One of such witnesses, Ms. Tai Mei Kiu, has left the Defendant's employment in July 2001.

Assessment of the evidence

13. Having carefully considered the evidence and observed the witnesses, I prefer to accept the evidence of Mr. Li. According to my observation, Mr. Li is a conservative businessman and also a man of principles. Indeed, Mr. Li's impressive record of property property transaction speaks for itself, and it is quite unlikely that he is a person who would readily find excuses to back out from a transaction. As a conservative businessman, he trusts people on their words, and likewise, he does not appear to be a person who would go back on his own words. In such circumstances, and if the Defendant's case were to be believed, I cannot find any logical reason why Mr. Li suddenly changed his mind in just two days. Although Mr. Li frankly admitted that the stock market had gone down slightly during that short period of time, the property market remained relatively stable. Hence, it is clear to me that Mr. Li was not finding excuses to back out from an unfavourable deal. Indeed, if he is such kind of person, one would expect that similar defaults must have occurred in the past when Mr. Li purchased other properties.

14. I have also noticed that Mr. Li is a rather subjective person who tends to jump into conclusion rather easily. In such circumstances, I need to warn myself that he might have misheard the relevant conversation. However if the Defendant's evidence were to be believed, that would mean that Mr Li had misheard on two occasions, the first one on 6 April 2000 when Mr. Ho allegedly explained the practice of mortgagee's sale, and the second one on 10 April 2000 when Ms. Fung allegedly notified him about the presentation of the Cheque for payment. However, being an experienced businessman, I discard the possibility that Mr. Li had misheard twice.

15. I have also considered the suggestion that Mr. Li might have been influenced by his partner in not proceeding with the deal. However, despite such possible influence, I do not accept that Mr. Li is a person who would easily go back on his own words. In my judgment, the main reason why Mr. Li and his partner were so furious on 12 April 2000 was because they, for the first time, knew that the Defendant had without their prior consent handed over the Cheque to the Vendor. Apart from this, like Ms. Fung and Mr. Ho, I cannot think of any other logical reason to explain Mr. Li's conduct. Indeed, Mr. Li immediately put down such complaint in writing in the letter dated 14 April 2000, and this recent complaint certainly supports that the Plaintiff's allegation is not a fabricated one.

16. Mr. Au for the Defendant, in his able submission, tries to attack the creditability of Mr. Li as a witness. According to him, the Defendant, as an estate agent, did not have any control over the Vendor, and so it was inherently improbable that Ms. Fung or Mr. Ho could have assured Mr. Li that the Vendor would definitely execute the Provisional Agreement on or before 8 April 2000. However it is apparent that the Plaintiff's main complaint relates to the handing over of the Cheque. Even in the Statement of Claim, the Plaintiff is only alleging that the Defendant would "arrange" the Vendor to execute the Provisional Agreement on or before 8 April 2000. To me, such promise does not amount to an absolute guarantee that the Vendor would execute the Provisional Agreement before the said date. In such circumstances, there is nothing unusual or improbable about such promise.

17. Mr. Au also submits that Mr. Li's evidence is contradictory to the contents of the estate agent engagement form signed by him. The form shows that the first inspection of the Property took place on 6 April 2000, and not 5 April as alleged by Mr. Li. However, I do not find that such immaterial inconsistency does have any effect on the creditability of Mr. Li as a honest witness. Indeed, there are a lot of reasons as to why this was the case. Firstly, the date on the form might not be correct. Secondly, Mr. Li might have signed the said form on 6 April 2000 together with the Provisional Agreement. Thirdly, Mr. Li might have made a genuine mistake about the date of the first inspection. In any event, I do not accept that such matter casts any doubt on the creditability of Mr. Li as a honest witness.

18. On the other hand, I do not accept that the Defendant's evidence makes very much sense. If its case were to be believed, it is very difficult to explain why Mr. Li drastically changed his mind in just two days. Apparently, the Defendant's staffs handed the Cheque over to the Vendor by mistake, and they therefore had to make up a story to cover their own fault. To support the Defendant's case, Mr. Au submits that the court should attach more weight to the evidence of Ms. Tai. As she has already left the employment of the Defendant, she can now be regarded as an "independent" witness. However, as Ms. Tai is a close friend of Ms. Fung, and the former only left the employment of the Defendant last month, her evidence may not be that reliable as it appears to be. Hence, on the balance of probabilities, I prefer to accept the evidence of the Plaintiff.

Waiver

19. As I do not find that the Defendant's representatives had given an absolute assurance that the Provisional Agreement had to be executed on or before 8 April 2000, or that the date for the signing of the formal agreement had to be on or before 12 April 2000, the Defendant was not in breach of the other terms of the Oral Agreement as mentioned in paragraph 3 above. As the Defendant needs only rely upon the defence of waiver if the court were to hold otherwise, it is not necessary for me to deal with such defence in the present case.

Causation

20. It is the Defendant's case that the Plaintiff's loss was caused by the Vendor's presentation of the Cheque for payment and its refusal to return the initial deposit, and not by the Defendant's breach of the Oral Agreement. Strictly speaking, this allegation should have been pleaded in the Defence. However as both parties fully realised at the outset of the trial that this would be an issue in the present case, I have allowed the Defendant to advance such argument in its final submission.

21. In my judgment, the Defendant's breach of the Oral Agreement was certainly a cause of the loss suffered by the Plaintiff. Supposedly, a person entrusted certain property to a bailee for safe custody for reward. However, the bailee failed to exercise reasonable care to look after the property, and as a result the same was stolen by a third party. In such case, the bailee's breach of duty was certainly a contributory cause. Without the negligence of the bailee, the third party would not have been able to commit the theft, and it is not open to the bailee to argue that the loss was caused only by the theft committed by the third party. In my judgment, the same reasoning applies here. If the Defendant had not been in breach of the Oral Agreement in handing over the Cheque, the Vendor would not have been able to present the Cheque for payment. The intervening act of the Vendor in presenting the Cheque for payment was certainly foreseeable, and so the Defendant's breach and the Vendor's conduct were both effective causes of the Plaintiff's loss, and it is not open to the Defendant to deny liability based on the lack of such casual link.

Mitigation of loss

22. It is also the Defendant's case that the Plaintiff should have brought an action against the Vendor first before proceeding with the present claim against the Defendant. As the Plaintiff has not done so, it fails in its duty to mitigate the loss.

23. In support of his submission, Mr. Au relies on the case of Walker v. Geo H. Medlicott & Son (a firm) [1999] 1All ER 685. In that case, the plaintiff, being a beneficiary under a will, brought an action against a solicitors' firm for negligence in preparing a will. The plaintiff claimed that the will did not properly record the testator's intentions, and as a result he suffered damages. In the first instance, the trial judge found that the solicitors had not been negligent. The Court of Appeal did not disturb that finding. However, the Lord Justices of Appeal went further and held that the plaintiff, in mitigating his loss, should have brought proceedings for rectification of the will first before proceeding with the claim of negligence against the solicitors.

24. On the other hand, Mr. Au concedes the following. Firstly, as mentioned by Simon Brown LJ in page 701b of the Walker case, the standard of reasonableness required of a plaintiff to mitigate his loss is not a high one, and it is a question of fact in each particular case as whether the plaintiff has discharged such duty. Secondly, as laid down in the case of Pilkinton v. Wood [1953] Ch 770, a plaintiff, in mitigating his loss, needs not take the risk of starting an uncertain litigation against a third party to recover his loss.

25. In my judgment, the English Court of Appeal's decision in the Walker case is only limited to the facts of that particular case. As Sir Christopher Slade said in page 697h of the judgment, justice in that case demanded that all the beneficiaries of the will should share the financial burden of putting the things right, and so rectification proceedings should be the more appropriate remedy. In the present case, we have two wrongdoers causing the same loss to the Plaintiff, and the latter should have the right to sue either party to recover its loss. Indeed, Mr. Li takes the view, rightly or wrongly, that the Defendant is morally more culpable than the Vendor, and so he brought the present proceedings against the Defendant. In my judgment, he should not be penalized for making such decision.

26. On the other hand, if the Defendant's submission is correct, the Vendor, in facing a claim brought by the Plaintiff, may raise the same argument that the Plaintiff should have brought a claim against the Defendant first. In such case, is the court required to assess which action is more likely to succeed, or which defendant is more culpable? In law, if there were two effective causes for the same loss, the court needs not choose which cause was the most effective (see Chitty on Contracts, 28 ed., vol. 1, para. 27-033). Adopting the same reasoning, the Plaintiff should have the right to sue either the Defendant or the Vendor, or both, to recover its loss. Further, it is always open to the Defendant to join the Vendor as a third party in the present action. If it has not done so, why should it be allowed to complain that the Plaintiff has not sued the Vendor first? Hence, I do not accept that the Plaintiff has failed in its duty to mitigate its loss.

27. Based on the aforesaid, I find the case in favour of the Plaintiff. I therefore grant judgment for the Plaintiff in the sum of $230,000. I also make an order nisi that the Plaintiff is entitled to: (i) interest on the said sum at the rate of 10.86% per annum (the existing judgment rate) from 6 December 2000 (the date of the Writ) to the date hereof and thereafter at judgment rate; and (ii) costs of this action. The order nisi is to be made absolute after the expiration of 14 days from the date of the handing down of this judgment.