RICACORP PROPERTIES LTD v. PROFIT CITY HOLDINGS LTD AND ANOTHER

DCCJ815/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 815 OF 2013

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JUDGMENT

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Introduction

1.  There are two aspects of this case:-

(i)   the contractual claim by the plaintiff as estate agent for unpaid commission against the 1^st defendant (D1) as vendor and the 2^nd defendant (D2) as D1’s agent relating to the sale of two adjoining semi-detached houses in Palm Springs, Yuen Long, respectively No 13 and No 15 Osmanthus Path (“the Osmanthus Properties”); and

(ii)   the defendants’ counterclaim for damages, reference being made to the difference between the transacted price and the market price of the Osmanthus Path Properties, occasioned by the plaintiff’s breaches of duty variously under common law, equity, statutory provisions, regulations and implied terms. 

2.  Shortly put, the plaintiff’s case is that D1, through D2 as its agent, entered into two provisional sale and purchase agreements (“the PSPAs”)[1] and two agency agreements (“the AAs”)[2] as vendor for the sale of the Osmanthus Path Properties and therefore was liable to pay the plaintiff commission in the total amount of $172,000[3] under the terms of the PSPAs[4] and the AAs[5].  Alternatively, if D2 had no authority to bind D1, the latter had nevertheless ratified the transaction by completing the sale and therefore was liable for the commission.  As regards D2, the plaintiff says he was personally liable to pay the commission by virtue of a term in the PSPAs.[6] 

3.  The defendants’ case in gist is that D2, who had never been D1’s shareholder, director or employee, was not D1’s agent.  In particular, D2 had told Kwok Chi Man (PW1), a branch manager of the plaintiff, that he had no authority to bind D1 contractually.  On the night of 17 March 2012, D2 put his signatures on the PSPAs and the AAs just to show “sincerity” and he did so because of the undue pressure exerted on him by PW1 and his subordinates.  Nevertheless, D2 had made it clear to PW1 that D1 would not accept any offers less than $17.5 million in total and that PW1 was not to release the PSPAs to the purchaser until D1 had given its confirmation and approval.  However, PW1 violated that expressed instruction and acted in breach of duty by passing the documents to the purchaser without the defendants’ knowledge and consent.  As such, the plaintiff was vicariously liable for the acts of its employees.  Based on the above, the defendants say that the PSPAs and AAs were not binding on them.  The defendants also say that the documents were unenforceable by virtue of s 5, Unconscionable Contracts Ordinance, Cap 458 because of the conduct of PW1 and his subordinates.  Alternatively, if the aforesaid documents were binding, the plaintiff should not be entitled to any commission.  If, contrary to their submission, the plaintiff was entitled to anything, the defendants would ask for a set off of their claim against that of the plaintiff.  This is because the Osmanthus Properties had been sold below their market value as a result of the plaintiff’s breaches of duty. 

The issues

4.  In view of the pleadings and the contentions of the parties[7], the major issues on liability in this case can be summarised as follows:-

(i)   whether D2 had the authority to sign the PSPAs and the AAs for and on behalf of D2 or to bind D1 contractually in the sale of the Osmanthus Path Properties;

(ii)   whether D2’s signatures on the PSPAs and the AAs of the Osmanthus Path transaction were procured by PW1 and his subordinates by undue influence or any other improper means;

(iii)   whether PW1 or his subordinates had acted in breach of any duty or instruction by passing the PSPAs to the purchaser Smart Base Engineering Ltd (“Smart Base”)[8] immediately after D2 had signed them;

(iv)   whether there was any ratification by D1 and if so, whether the ratification also covered the duty to pay commission to the plaintiff;

(v)   whether D2 is personally liable to pay the commission to the plaintiff; and

(vi)   whether the plaintiff is liable to the defendants for the difference between the transacted price and the market price.

No 9 Camelia Path

5.  The plaintiff relies on a previous transaction concerning another property in Palm Spring, namely No 9 Camelia Path, in which D2 was also involved, to show that he was D1’s agent in the subsequent sale of the Osmanthus Path Properties and that he had authority to bind D1 contractually.  Therefore, it would be convenient for me to first set out the background and my factual findings about the previous transaction:-

(i)   PW1 was a manager of the plaintiff at its Palm Spring/The Vineyard Branch.  Tiffany Kwok (PW2) was his subordinate.

(ii)   D2 was a Project Manager of Devonia Development Ltd. 

(iii)   Prior to the Osmanthus Path transaction, D2 was concerned in the sale of No 9 Camelia Path, Palm Springs. The vendor was Lucky Key Holdings Ltd (“Lucky Key”) which was a BVI company.

(iv)   However, there is no evidence that D2 was either a shareholder or a director of D1.  There is also no evidence that D2 had any financial interest in the sale of No 9 Camelia Path.  Besides, D2’s employer had no shareholders or directors in common with Lucky Key. 

(v)   The purchaser of No 9 Camelia Path was Profit Alliance Development Ltd.  

(vi)   During the price negotiation stage of the Camelia Path transaction, PW1 dealt mainly with D2 as the contact person of Lucky Key whilst PW2 dealt mainly with the purchaser.

(vii)   In the afternoon of 11 March 2012 which was a Sunday, PW2 and a junior male colleague (PW3 Mike So) went to see D2 and met the latter at the ground floor lobby of a building on Kotewall Road where D2 resided.  PW2 presented for D2’s signature the PSPA[9] and the AA[10] pertaining to No 9 Camelia Path.  The PSPA, which was in triplicate, had already been signed by the purchaser and the price was stated to be $8.95 million.  That price had already been discussed between PW1 and D2 through telephone conversations before PW1 asked PW2 to go to see D2.

(viii)   There is no dispute that on 11 March 2012 on D1’s instruction D2 put his signatures on the PSPA and the AA and took from her a cheque of $300,000 as the initial deposit.  There is a dispute, however, as to whether or not D2 had told PW2 that another signature had to be added in order to make the PSPA binding on Lucky Key. 

(ix)   Having observed PW2 as a witness and considered the inherent probabilities, I accept PW2’s evidence and find as a fact that she had called D2 before she went to see him on 11 March 2012 and was told by him that he had a letter of authorisation and that he could sign the documents.  I also accept her evidence that she had not been told by D2 that another signature was required; otherwise she would not have taken the trouble of bringing the documents from Palm Spring in Yuen Long to Kotewall Road at Mid-levels to meet D2, just to be told that she had to take the documents to meet him again on the following day in his office.  I accept PW2’s evidence and there is no dispute that she had given the vendor’s copy of the PSPA to D2 before she left D2’s building.  I find as a fact that the handwritten words “for and on behalf of Lucky Key Holdings Ltd” were already written on the PSPA and the AA when D2 put his signatures on them.  There is no evidence before me that the vendor’s copy of the PSPA did not have those words showing that D2 had signed in a representative capacity. 

(x)   There is no dispute that PW2 went to D2’s office in Kwun Tong on 12 March 2012.  I accept the evidence of PW2 that her purpose was to obtain from D2 the letter of authorisation and also for him to stamp Lucky Key’s company chop on her copies of the PSPA.  As it turns out, however, D2 did not produce any letter of authorisation to PW2.  Instead, D2 took the copies of the PSPA from PW2 and when he returned the documents born an additional signature together with the company chop impression.  PW2 had not expected this to happen.

(xi)   There is no dispute that PW2 was given by D2 a list of properties[11] and his name card[12].  It is noted that No 9 Camelia Path and the Osmanthus Path Properties were among the properties listed.  Apparently, the purpose of D2 giving the list to PW2 was to ask the plaintiff to look for potential purchasers. 

(xii)   There is a dispute, however, as to when D2 gave the list and his name card to PW2.  D2 gave evidence in court that he did that on 12 March 2012 in his office.  However, that was not mentioned in his witness statement which he adopted as his evidence in-chief.  Not only that, D2 said in his statement that he had been “extremely surprised and astonished” that PW1 would know about No 9 Camelia Path and approached him for the intended sale, as the plaintiff had not previously been asked by Lucky Key to act.[13] D2 also said in his statement that both Lucky Key and he were “discontent” with the way the plaintiff, PW1 and/or PW2 had obtained information about the Camelia Property and his personal data.[14]  I find that if what D2 said in his statement were true and if he were so displeased by PW1’s way of doing things, then it would be inherently improbable that either he or Mr Hui (DW2)[15] would have asked the plaintiff or PW1 to help in looking for purchasers for DW2’s other properties.  It is DW2’s evidence that he was not anxious to sell his property.  Moreover, if D2 thought that his privacy had been violated by the plaintiff, it would be counter-intuitive for him to give PW2 his name card which contained his personal particulars.  I find therefore that D2’s evidence contains exaggerations and that he is not a credible witness.  Having observed the witnesses giving evidence and considered all the relevant evidence as a whole, I prefer the evidence of PW2 and PW3 and find that D2 gave his name card and the list of properties to PW2 on 11 March 2012 in the lobby of his building, the reason being that he wanted the plaintiff to find purchasers also for DW2’s other properties.

(xiii)   There is no dispute that the Camelia Path transaction was completed and the plaintiff was paid the commission for that transaction.

As to (i): Agency and Authority

6.  Ms Leung, counsel for the plaintiff, relies on the following to show that D2 had authority to bind D1 in the sale of the Osmanthus Path Properties:-

(a)   the Camelia Path transaction which took place just a few days before and that, Ms Leung submits, shows that D2 had duly executed the PSPA on behalf of Lucky Key for its sale of No 9 Camelia Path.  Ms Leung stresses DW2’s beneficial ownership of both Lucky Key and D1;

(b)   PW1’s evidence that D2 had repeatedly assured him that D2 had an authorization document from D1 and that D2 could sign the PSPAs for and on behalf of D1.  PW1 said in his witness statement (which he adopted as his evidence-in-chief) that when he and his subordinates Sit Dong Mui (PW4) and Rico Leung met D2 at the Ground Floor lobby of D2’s residence on the night of 17 March 2012, D2 told him that the authorisation document was left in D2’s office and that D2 would asked his lawyers to send the authorisation document to the purchaser’s lawyer.[16] PW1 supplemented in his evidence in court that he had also asked D2 in a telephone conversation earlier that day whether D2 could sign himself and D2 replied in the affirmative; and

(c)   the “indoor management rule” in Royal British Bank v Turquand[17] which, Ms Leung submits, the plaintiff, who had no notice of any internal irregularities of D1, is entitled to rely upon.

7.  With due respect, I am unable to accept Ms Leung’s submissions above.  My reasons are as follows:-

(a)   In my view the Camelia Path transaction does not assist the plaintiff.  First, the vendor in the Camelia transaction was not D1 but Lucky Key which is a different legal entity. Secondly, the evidence in my view tends to suggest that D2 did not in fact have authority to sign documents for and on behalf of Lucky Key and therefore another signature had to be added to the agreements.  Thirdly, for the sake of argument even assuming that D2 had the authority to sign agreements for and on behalf of Lucky Key, in my assessment it does not follow that he would also have the authority to sign agreements for and on behalf of D1.  In making these findings, I have already taken into account the fact that Lucky Key and D1 were both beneficially owned by DW2 as well as the proximity between the Camelia Path transaction and the Osmanthus Path transaction in question.

(a)   Although I prefer the evidence PW1, PW2 and PW4 to that of D2 and accept that D2 had told them at different stages in respect of the Camelia Path transaction and the Osmanthus Path transaction that he possessed the relevant authorisation documents and could sign the agreements, as submitted that Mr Hui, counsel for the defendants, the representations of D2 could not create authority on himself which in fact did not exist and still less could D2’s representations bind D1, there being no evidence that DW2 was even aware of any of those representations.  See also Deyi Investment Ltd v Macjin Info-Com Tek Ltd & Another.[18]

(b)   As regards the “indoor management rule”, it is a non-starter.  There is no evidence that D2 had occupied any position in D1 or that he had been appointed by D1 to act as its authorized signatory.  There is also not sufficient evidence that he had any authority, subject to any internal regulations of D1, to bind D1 contractually.

8.  I have considered whether there is a case against the defendants of D2 having apparent authority to act in the sale of the Osmanthus Path Properties.  However, I am persuaded by Mr Hui that the plaintiff has never pleaded a case of apparent or ostensible authority in its Statement of Claim.  My reasons are as follows.  Firstly, in the Statement of Claim the plaintiff’s case in relation to 13 Osmanthus Path is pleaded as follows:-

“2. On or about 17 March 2012, the 1^st Defendant ...... appointed the Plaintiff to act as its agent on commission ...... and agreed to pay the Plaintiff a commission ... upon the signing the preliminary sale and purchase agreement.

3. On or about 17 March 2012, the Plaintiff complied with section 45 of the Estate Agents Ordinance (“the Ordinance”) by entering into an estate agency agreement ...... with the 1^st Defendant in the form as prescribed by the Ordinance.

......

7. On or about 17 March 2012 it was agreed between the Plaintiff and the 2^nd Defendant that if the 1^st Defendant that if the 1^st Defendant through the Plaintiff’s assistance entered into a binding agreement for sale and purchase in respect of the Property 1 ...... and if the 1^st Defendant subsequently fails to pay commission ...... the 2^nd Defendant shall be personally liable for all such commission ......

8. In reliance of the agreement made by the 2^nd Defendant as stated in paragraph 7 above, through the assistance of the Plaintiff, the Plaintiff, the Purchaser and the 2^nd Defendant on behalf of the 1^st Defendant signed a binding sale and purchased agreement dated on 17 March 2012. ......”

The plaintiff’s case in respect of No 15 Osmanthus Path is pleaded in terms similar to the above. Therefore, the plaintiff is asserting that the PSPAs and the AAs though signed by D2, were entered into by D1.  On the other hand, the plaintiff has not pleaded any representations made by D1 or other facts which may support a case of apparent authority against the latter.  It is clear to me, from a plain reading of the statement of claim, that the case pleaded by the plaintiff is one of actual rather than apparent authority.

9.  Secondly, in my view the plaintiff’s reply to the defence does not reveal a case of apparent authority either.  In the Amended Reply, the plaintiff only asserts that:-

“The Plaintiff further says that, even if the 2^nd Defendant signed the Agency Agreement 1 and the Agency Agreement 2 without the authority of the 1^st Defendant, which is denied, the 1^st Defendant have shown acquiescence and ratification by completing the sale and purchase of Property 1 and Property 2 in the manner stipulated in the preliminary sale and purchase agreements of Property 1 and Property 2.”[19]

In my judgment, what is pleaded there is clearly a case of ratification only.

10.  Besides, even if I were wrong about the absence of any pleaded case on apparent or ostensible authority, as a matter of merits there is simply no evidence to support such a case:-

(a)   There is no dispute that during all material times the plaintiff and its staff had not been in any direct contact with DW2.  It was by D2, not D1, that the representations of D2’s authority were made.  The fact that an additional signature was required for the PSPA of No 9 Camelia Path shows that D2’s signature would not bind D1. There is no evidence that D1 had clothed D2 with apparent authority to act on its behalf: see Thanakharn Kasikorn Thai Chamkat (Maha Chon) v Akai Holdings Ltd (No 2).[20]

(b)   It is also pertinent to note that PW1’s evidence in court was that he did not know at the time who the shareholders and directors of Lucky Key and D1 were, both of them being BVI companies.  PW1 also gave evidence in court that he was told by a Ms Cheuk of Centaline (another estate agent company which had previously been appointed to look for purchasers) that D2 was representing “a group of owners”.  PW1 was also aware that the Camelia Path property and the Osmanthus Path Properties were owned by different BVIs.  Therefore, I find that PW1 had not worked on the basis that No 9 Camelia Path and the Osmanthus Path Properties were beneficially owned by the same owner or owners.  To the contrary, I find that PW1 was alive to the possibility that the properties concerned might have been owned by different combinations of people. 

Under the circumstances, I find that the fact that D2 had assisted in the Camelia Path transaction is not sufficient to give rise to a “course of dealing” or to enable an inference to be drawn that he had the authority to bind D1 in the sale of the Osmanthus Path Properties. 

11.  Based on the above, I find that the plaintiff has failed to discharge its burden of proving that D2 had authority, whether actual or apparent, to bind D1 contractually in the sale of the Osmanthus Path Properties.

As to (ii): undue influence or other improper conducts

12.  The evidence of undue influence or other improper conducts on the part of PW1, Sit Dong Mui (PW4) and a third male[21] allegedly committed during the night of 17 March 2012 comes solely from D2, there being no direct contact between DW2 and any of the plaintiff’s staff members. 

13.  In gist, in D2’s witness statement[22] which he adopted as his evidence in-chief, he said the following:-

(i)   In the late evening of 17 March 2012 at around 11:25 pm, he was at home.  Without any prior appointment, he was informed by the management office that he had a visitor who turned out to be PW1.  He did not expect PW1 to come and he told the management office that he did not want to see PW1.  After a few minutes, the management office called again and said that PW1 insisted to meet him and was arguing loudly at the lobby.  In order to avoid any damage to his reputation, he went down to see PW1 and found that PW4 and Mike So (PW3)[23] were also there.

(ii)   PW1 produced the two PSPAs and AAs and forced him to sign.  He found that the aggregate price was only $17.2 million.  He therefore told PW1 immediately that he had already said that D1 would not sell for anything less than $17.5 million.

(iii)   Despite that, PW1 continued to exert pressure on him and pressing him to obtain authorisation and confirmation.  He had no choice but to contact DW2.  DW2 told him that any offer less than $17.5 million would not be accepted.

(iv)   He related what DW2 said to PW1. However, PW1 insisted that he sign the document or else PW1 would not be able to hold on to the purchaser.

(v)   As PW1 and his subordinates refused to leave, he had no choice but to sign the documents.  However, he stressed to PW1 that it was only a gesture of sincerity that he signed.  He also emphasized to PW1 and the latter understood that he had no authority to conclude the transaction and that the transaction was subject to the confirmation and approval of D1. 

(vi)   Upon his demand, PW1 promised that the signed documents would not be released and/or disclosed to the purchaser or any third parties until the confirmation and approval of D1.

(vii)   Before he signed, PW1 had not explained the documents to him.  Despite his request, he was not given an opportunity to read through them carefully. 

14.  In his evidence in court, D2 said further that as PW1 and his people were very noisy in the lobby, he knew that if the commotion continued the police would come.  He was worried about what people would think of him, suspecting that he was having troubles with a beautiful young female (referring to PW4).  He also worried that the matter might affect his wife who was a senior member of an investment bank, as there were several investment bankers also living in the same building. 

15.  Both PW1 and PW4 gave evidence denying that they had exerted any pressure on D2 or had done anything to force D2 to sign on the documents.  PW1 said he went to see D2 even though it was late at night because D2 had said that he was available however late it would be.  PW1 said that after the purchaser had agreed to pay $17.2 million, he called D2 and asked where he should take the contracts for D2 to sign and D2 gave him the home address on Kotewall Road.  PW1 said that he reached D2’s building at about 11:30 pm and when he met D2 in the lift lobby, the latter said that he (D2) had an authorization but it was left in the office.  PW1 said that before D2 signed on the documents, the latter had walked away twice to make phone calls.  PW1 said that he had explained the documents to D2 before D2 signed on them.  PW4 gave similar evidence and said that D2 came down within a few minutes after they had arrived at the lift lobby and he even praised them for having done well.

16.  There is no dispute between the parties that that night D2 had taken two cheques,[24] each for $500,000, from PW1 and acknowledged receipt thereof by signing on the PSPAs.[25] 

17.  Having observed the witnesses giving evidence in court and considered the inherent probabilities of the matter, I find that D2 is not a credible witness and I reject his evidence regarding what had happened during the night of 17 March 2012.  I prefer the evidence of PW1 and PW4, both of whom I find to be credible witnesses, as to what in fact had happened on that occasion.  This is because:-

(a)   I find it inherently improbable that PW1 and his subordinates would have taken the trouble of travelling so late at night from the New Territories to the Mid-levels to see D2, had D2 not indicated a chance of the purchaser’s offer price ($17.2 million) being agreeable and a willingness to meet them if the asking price was met.  I note that contrary to what D2 had said in his witness statement[26], there was no mention in the first letter written by D1’s solicitors that D2 had told PW1 that the aggregate purchase price would have to be at least $17.5 million.  I note also that in the same letter it was said that “The said offer [$16.5 million] was outright rejected by Mr Tse who informed Mr. Kwok that our client were not prepared to consider any offer for the Properties which falls below HK$17.2 million.”[27] As such, it appears that the eventual offer made by the purchaser ($17.2 million)　had in fact met D1’s then asking price;

(b)   I find it inherently improbable that PW1 would exert pressure on D2 if he had been told that D2 had no authority to sign.  I note also that “undue influence” or “pressure” was not even raised in the first letter written by D1’s solicitors to the plaintiff’s solicitors.  D1’s solicitors relied only on certain representations allegedly made by PW1;[28]

(c)   in DW2’s cross-examination, in relation to his telephone conversation with D2 on the night of 17 March 2012, when he was asked whether D2 had told him that the estate agents were putting pressure on D2 forcing D2 to sign, DW2 answered in the negative.  DW2 said D2 had only told him that the agents were very troublesome;

(d)   at the time PW1 had already been given the list of properties[29] from D2.  Therefore, PW1 must have been known that there could be further business opportunities via D2.  In the circumstances, it simply beggars belief that PW1 would take the risk of offending D2 by forcing him to sign documents;

(e)   D2’s alleged worry for his wife is not mentioned in his statement and in my assessment does not ring truth; and

(f)   D2 is a mature man with a BBA degree from the University of Hong Kong and has extensive work experience.  He had worked in the mainland as a developer and is a project manager in a subsidiary of a listed company.  I find it improbable that a man like him would have signed contracts without reading them and not intending to be bound but just as a gesture to show “sincerity”.  In particular, I note that he had signed similar documents just a few days before in relation to No 9 Camelia Path. 

18.  Having considered all the relevant evidence as a whole, I find that PW1 and his subordinates had not exerted any undue influence or illegitimate pressure on D2 or had otherwise done anything improper to him: See Universe Tankships Inc of Monrovia v ITF[30]. I find that PW1 had explained the documents to D2 and that D2 signed them willingly and with full knowledge of their contents.  I find also that there is no evidence that the plaintiff or any of its employees had knowledge of D2’s weakness and had knowingly taken advantage of such weakness.  It follows that s 5 of the Unconscionable Contract Ordinance (Cap 458) is of no avail to the defendants: see Shum Kit Ching v Caesar Beauty Centre Ltd[31].

19.  In making the above findings, I have not ignored the criticism levelled at PW1 that he had failed to follow the guidelines contained in the relevant Circulars of the Estate Agents Authority[32] in that he had not checked carefully D2’s authorisation before letting D2 sign on the contracts purportedly for and on behalf of D1.  I have also taken into account that as a result of D1’s complaint, PW1 was disciplined by the Estate Agents Authority[33].  However, I note that the penalty imposed on PW1 related only to his failing to confirm D2’s authority.  I accept that PW1 had been negligent by not insisting on seeing D2’s authorisation document.  However, I find that PW1’s failure to comply with the relevant guidelines and his later acceptance of the penalty imposed by the Estate Agents Authority do not undermine his credibility as a witness[34].  It is probable in my view that the eventual success of the Camelia Path transaction had made it easier for PW1 to believe (wrongly) that D2 was acting with the approval of D1 regarding the Osmanthus Path Properties.  I find it probable that PW1 had been misled by D2 in this regard.

As to (iii): passing of the PSPAs to the purchaser

20.  I reject D2’s evidence as to what happened on 17 March 2012 for the reasons given above.  On the other hand, I accept the evidence of PW1 that he had told D2 that he (PW1) would pass the signed PSPAs to the purchaser right away and in reply D2 asked him to fax the PSPAs to the vendor’s solicitors.[35]

21.  I find therefore that PW1 had not committed any breaches of duty whatsoever against the defendants.  I find also that PW1 had not acted contrary to D2’s direction by passing the PSPAs to the purchaser. 

As to (iv): Ratification

22.  Ms Leung for the plaintiff submits that there is clear evidence of ratification of the PSPAs by D1.  Mr Hui for the defendants submits the otherwise. 

23.  The law about ratification is well-established.  There can be ratification whether the person doing the act (D2 in the present case) was agent exceeding his authority or was a person having no authority to act at all: see Bowstead & Reynolds on Agency, 20^th Ed, Article 13, at §2-047.  

24.  As far as the evidence is concerned, on the morning of 18 March 2012, D2 called PW1 and said that D1 was not satisfied with the selling price of the Osmanthus Properties and asked that the aggregate price be increased to $18 million.  The message was later communicated to the purchaser who refused to raise the purchase price.  D1 had tried to return the two cheques to the purchaser via the plaintiff[36]. However, the plaintiff declined to assist saying that they did not have the authority from the purchaser to accept the return of the cheques[37]. There is also no dispute that eventually the Osmanthus Path Properties were assigned on 18 June 2012 to the purchaser without any formal sale and purchase agreements.[38]

25.  As to why D1 would choose to complete the sale, DW2, who was the beneficial owner of D1, has the following to say in his witness statement which he adopted as his evidence in-chief:-

“I was informed by my legal advisors on the legal position of the 1^st Defendant with regard to the Osmanthus Preliminary SPAs vis-à-vis the intended purchaser, I verily believe that the 1^st Defendant has no alternative but to proceed with the sales in order to avoid the possibility of being sued by Smart Base. Hence, the sales were eventually completed on 18^th June 2012.” [39]

26.  Under cross-examination, DW2 said further that he chose to complete the sale because he was afraid that the purchaser might cause an encumbrance to be registered against the Osmanthus Path Properties (釘契), that he might be required to pay damages to the purchaser which would equal twice the amount of the deposit paid and that he might face two lawsuits (one from the purchaser and the other from the plaintiff) at the same time.

27.  With due respect, I am unable to follow the logic of the above explanations.  Had D1 refused to complete, its defence to the purchaser’s claim for breach of contract and its defence to the plaintiff’s claim for unpaid commission would be similar, namely that the PSPAs were not valid and not binding as they had been signed by D2 without authority, that D2’s signatures on the agreements were procured by improper means and that D2 had only signed as a “gesture of sincerity”.[40] Moreover, in my view the evidence and the strength of D1’s aforesaid defences would be similar in either case, so that if D1 had a good defence against the plaintiff, then it would also have a good defence against the purchaser.  As such, if DW2 (who said he was under not financial pressure to sell) did not wish to proceed with the sale to the purchaser, he certainly had other options opened to him.  It might be that it would more costs effective for D1 to contest the plaintiff’s claim in the District Court rather than to contest the purchaser’s claim in the Court of First Instance.  However, this can hardly afford D1 a basis for denying that there had been a ratification of the PSPAs. 

28.  In my view, even though D2 had signed the PSPAs without authority, the subsequent cashing of the cheques of the initial deposit,[41] the acceptance of the further deposit[42] and the eventual completion of the sale and purchase is probative evidence of ratification by D1. 

29.  Mr Hui also submits that the PSPAs and the EAAs were separate contracts and the plaintiff could only rely on the AAs (but not the PSPAs) to claim their commission.  Reference was made to s 45 of the Estate Agents Ordinance, Cap 511.[43]

30.  I have the following observations regarding s 45 of the Estate Agents Ordinance:-

(i)   The provision does not give an estate agent any cause of action.  It operates to restrict the enforceability of an agent’s “right or other cause of action” for damages or any other relief or remedy only to cases in which the conditions contained in paragraphs (a) and (b) of that provision are met, namely that there was an agency agreement in the prescribed form containing certain prescribed particulars and that the agent was a licensed estate agent.  However, it does not operate to extinguish an agent’s existing right or other cause of action or to prevent him from asserting his right as a defence. 

(ii)   The provision is applicable to an agent’s “proposal” or “undertaking” to perform estate agency work for a client. It seems to me, however, that a point may be taken that it does not apply to situations like the present one where the estate agency work had already been performed, so that the agent’s right or course of action is based not so much on a “proposal” or “undertaking” as on the work done.  If this was correct, then the absence of a valid AA would not present a problem to the plaintiff’s claim against either of the defendants, as s  45 is simply not engaged.  I note, however, that Easy Property Co Ltd v Hau King Kuen,[44] a case relied upon by Mr Hui, suggests that the provision would still be relevant even though the estate agent’s claim is based on “quantum meruit”.  Ms Leung does not seek to argue the otherwise.  Without the benefit of full argument by counsel on this point, I am content to follow Easy Property Co Ltd v Hau King Kuen.[45]  For the purpose of the following discussion, I will treat the provision as being engaged.  

(iii)   Ms Leung submitted that s 45 only applies to a claim by an (estate) agent against his “client” and therefore does not apply to the plaintiff’s claim against D2, who was not the plaintiff’s client.  With respect, I am unable to agree.  Firstly, the provision is applicable to a right or cause of action for damages, etc, in “legal proceedings as regards the proposal or undertaking”.  In my view, on a plain reading, the provision is capable of covering any legal proceedings in which the estate agent seeks to recover damages, etc regardless of who the opposite party is.  Secondly, if Ms Leung were right, then the provision would be deprived of much of its force and utility whenever the client is a company so that the estate agent could always sue the signatory of the company in spite of s 45. That would be an astonishing result, given that property holding companies are common in Hong Kong and that one of the stated purposes of the Ordinance is to provide for “the regulation of estate agency work and certain estate agency agreements”.[46] It cannot be the legislative intent that the need for regulation is lesser in case the client is a company.  In my view, Ricacorp Properties Ltd v Golden Cosmos Corporation Ltd & Another[47]relied upon by Ms Leung does not in fact assist her.  That case was about a clause which is identical to Cl 18 of the PSPAs and the Court held that (i) a director of a company is clearly its agent and (ii) the fact that the director had signed “for and on behalf of” the company does not necessarily prevent him from being attracting personal liability.  As a matter of construction of Cl 18, it was the intention of the parties to the PSPA and agreed to by the director, for the director, as agent of the company, to be personally liable for all the liabilities of the company arising from the PSPA.  I agree with that judgment.  However, in that case the authority of the director to bind the company was not in question and s 45 of Cap 511 had not been raised or considered.  Therefore, I am unable to see how that case can assist the plaintiff on the interpretation and scope of the provision. 

31.  As regards the AAs, Mr Hui submits that even if D1 chose to complete the PSPAs, it did not recognize D2’s conduct in signing the AAs without authority.  My attention was drawn to a letter written by D1’s solicitors to the purchaser’s solicitors in which the former expressed that D1 was prepared to proceed with the transaction of the Osmanthus Path Properties “for the purpose of avoiding litigation” and that was “without prejudice to our client’s right and remedies against the plaintiff and its employees”.[48] Mr Hui, relying on Hughes v Hughes[49] and Accidia Foundation v Simon C Dickinson Ltd,[50] submits that D1’s completion of the sale and purchase with the purchaser does not imply a ratification of the agreement to pay commission.

32.  With respect, I am unable to accept Mr Hui’s above submission that there had not been any ratification of the AAs.  My reasons are as follows:-

(i)   the general rule is that the principal cannot adopt the favourable parts of a transaction and disaffirm the rest: he cannot approbate and reprobate, for this would enable him to effect a transaction into which the third party had never intended to enter: see Bowstead & Reynolds on Agency, ante, at §§2-079 and also Keay v Fenwick;[51]

(ii)   whilst I accept that there may be scenarios where a person may ratify a transaction for one purpose but reject it for another,[52] whether that was the case is a fact-specific question depending on all the circumstances and the expressed intention of the principle is not determinative;

(iii)   in the present case, I note that the PSPAs were tripartite agreements to which D1 (as vendor), Smart Base (as purchaser) and the plaintiff (as estate agent acting for both vendor and purchaser) were all said to be parties, so that if the agreements were valid each one of them would have certain rights and obligations which included the plaintiff’s right to receive from the vendor and the purchaser a commission of $86,000 each for their service rendered[53]. Whether the plaintiff would have any further role to play in the completion stage of the property transaction is, in my view, not decisive.  The more important matter is, and I so find, that the plaintiff had in fact provided the service required for them to earn the commission.  It would therefore be unfair if D1 is allowed to “cherry-pick” by adopting part of the PSPAs and to reject the rest so as to deprive the plaintiff’s entitlement to commission.  In my judgment, in view of all the circumstances and despite what was said in the aforesaid letter of D1’s solicitors, by ratifying the sale of the Osmanthus Path Properties D1 must be taken to have ratified the whole of the PSPAs; 

(iv)   as regards the AAs, I accept the submission of Ms Leung that they were so interrelated with the transaction of the Osmanthus Path Properties that they were “part and parcel” of that transaction.  Not only that the AAs were made at the same time as the PSPAs, the subject properties and the prices stated on the AAs were the same as those stated in the PSPAs.  Both the PSPAs and the AAs provided for the entitlement of the plaintiff to commission from the vendor for service rendered and the amount of the commission was also the same in both sets of documents.  The only difference is about the due day for the payment of the commission: the PSPAs said that it should be upon completion, whilst the AAs said that it should be upon the signing of the sale and purchase agreement.  However, I consider this difference to be one of no moment.  In my judgment, by applying In re Mawcon Ltd[54]that the adoption of part of a transaction operates as a ratification of the whole, D1 must be treated as having also ratified the AAs; 

(v)   the facts in Hughes v Hughes[55] are clearly distinguishable on the basis that there was no tripartite agreement between the wife, the estate agent and the purchaser for the sale of the property jointly owned by the wife and the husband and that the eventual sale was made pursuant to a new agreement made between the wife and the purchaser to which the estate agent was not a party and in which the estate agent had played no part.  It was in this context that Lord Denning MR said that the agreement (between the husband and the wife) to sell did not import the employment of an agent.  In the present case, however, the plaintiff’s right to receive commission is an integral part of the PSPAs.  Moreover, it was pursuant to the PSPAs that the transaction was subsequently completed.  D1 and the purchaser had not negotiated any new agreement and the selling price of the Osmanthus Path Properties remained the same as that stated on the PSPAs; and

(vi)   Accidia Foundation v Simon C Dickinson Ltd[56] is only an application of Hughes v Hughes and it does not lay down any new principles about ratification.  The facts of that case, complicated as they were, bear no resemblance to the present one. Accidia is about secret commission and it is in this context that Vos J said, “It would be absurd if Dickinson could force Accidia into a position where it could only complain about the commission secretly taken by Dickinson if it also ratified the agreement its agent made to allow such a commission”.  On the other hand, the present case is not about secret commission at all.  D1 made the informed decision to proceed with the sale to Smart Base by accepting the further deposits and the balance of the purchase price and by assigning the Osmanthus Path Property to Smart Base.  By contrast, in Accidia, the principal ratified the sale of the painting by passively retaining the proceeds of sale and refusing to return the purchase price or take back the drawing when the buyer asked for a refund or a re-purchase.[57] As such it is understandable why Accidia should not, by its mere inaction, be held to have ratified the secret commission agreement entered into by its agent without authority with Dickinson

33.  Lastly, Mr Hui relies on the “prevention principle” stated in Kensland Realty Ltd v Whale View Investment Ltd[58] that no wrongdoer should be able to benefit from his own wrong and submitted that the plaintiff should not be entitled to commission from a transaction which was procured by their employees through improper means.  In my judgment, the “prevention principle” is simply not engaged here, as I have found that PW1 and his subordinates had not been guilty of any breaches of duty or contract whatsoever against the defendants.  To the contrary, it is my finding that they had been misled by D2 that he was acting with D1’s blessing.

34.  To conclude, I find in favour of the plaintiff that D1 had ratified the sale of the Osmanthus Path Properties which carried with it an obligation to pay the plaintiff commission as provided in the PSPAs and the AAs.

As to (v): D2’s liability

35.  The basis of the plaintiff’s claim against D2 is Cl 18 of the PSPAs which, according to Ricacorp Properties Ltd v Golden Cosmos Corporation Ltd & Another, ante, imposes personal liability of the signing agent.  It would be convenient for me to set out that clause here:-

“如本合約由賣方或買方的代理人或受權人簽署，則代理人或受權人須承擔本合約之所有責任。”

(“Should the signatory be an agent or attorney of the Vendor/Purchaser, the agent or attorney shall be personally liable for all the liability arising from this agreement.”)[59]

36.  From a plain reading of Cl 18, in order for it to apply the signatory (D2 in this case) has to be an “agent or attorney” of the Vendor (D1 in this case).  In this regard, Ms Leung submits that D2 was an “agent or attorney” in that he had signed the PSPAs and the AAs with D1’s authority.  Alternatively, she submits that the word “agent” (代理人) should be interpreted in a wider sense than “attorney” (受權人) so as to include any “persons who simply perform functions of others”.

37.  As mentioned above, Ricacorp v Golden Cosmos stands for the proportion that a director is an agent of the company.  However, the court was not called upon to address whether there is a distinction between “agent” (代理人) and “attorney” (受權人). 

38.  As regards Ms Leung’s submission, as discussed above I have found that the plaintiff has failed to prove that either D1 or DW2 had authorised D2 to sign the PSPAs or the AAs on D1’s behalf. 

39.  On the other hand, I accept that the exact meaning of the word “agent” in a statute or a legal document must take colour from its context so that in an appropriate factual scenario a person can be an agent without the power to alter the legal position of another person whom he is acting for.  An estate agent is an obvious example of this. See also see Bowstead on Agency, ante, at §1-022; see also Ministry of Defence v Kemeh[60].

40.  I accept Ms Leung’s submission that looking at the PSPA as a whole as a matter of construction the word “agent” in Cl 18 is clearly capable of and intended by the parties to also cover persons who are agents in the wider sense so that in case the plaintiff was, for any reasons, unable to obtain commission from a party, they could look at the signatory of that party for remedies.  As discussed above, however, the enforceability of the agent’s right or cause of action against the signatory would be subject to the conditions imposed in s 45 of the Estate Agents Ordinance, which serves to regulate estate agency work and estate agency agreements.  One of the conditions is the existence of a valid agency agreement in the prescribed forms. 

41.  In the present case, I find that D2 was an “agent” of D1 in the wider sense in that he represented D1 in asking the plaintiff to look for purchasers of the properties listed in the List of Properties, in the discussion with the plaintiff (who also acted for Smart Base) about offers made and by relating those offers for D1’s consideration. In short, D2 acted as a conduit between D1 and the plaintiff who also represented the purchaser.  I find as a fact that D2 signed the PSPAs and the AAs after PW1 had explained their contents to him.  In particular, I find that D2 was aware of the Cl 18 when he signed the PSPAs for the Osmanthus Path Properties on 17 March 2012.  I note that when D2 was cross-examined about an identical clause in respect of No 9 Camelia Path,[61] he said that he knew that he would have to bear personal responsibility arising out of that transaction.  Furthermore, I find that D2, by putting his signatures on the PSPAs relating to Osmanthus Properties, agreed to be bound by their terms.

42.  As regards s 45 of the Estate Agents Ordinance, although the AAs were signed by D2 as D1’s agent without authority, I have found that they had been ratified by D1 as part of the transaction.  Besides, having regards to the principles laid down in Bowstead & Reynolds On Agency, ante, at §§2-004 & 2-089, I can see no reasons why the ratification should not have retrospective effect on the PSPAs and the AAs.  Therefore, in my judgment the plaintiff is able to rely on the AAs in their claim against D2 as well.  There is no issue that the plaintiff was a licenced estate agent.  As such, the conditions in s 45(a) and (b) are met. 

43.  To conclude, I find in favour of the plaintiff that D2 is under an obligation to pay the plaintiff commission by virtue of Cl 18 of the PSPAs.

As to (vi): Price difference

44.  The aggregate transacted price of the Osmanthus Path Properties was $17.2 million. 

45.  There is a joint expert report for the valuation of the market value of the Osmanthus Path Properties as at 17 March 2012[62]. The plaintiff’s surveyor put the aggregate value at $17 million.  The defendant’s surveyor put the value at $18.1 million.  However, there is substantial agreement between the surveyors.  The major difference between them is whether a premium adjustment should be given for the fact that the two semi-detached houses would merge into one detached house if any owner occupied both houses.[63] If the premium adjustment[64] is taken away, the estimates of both sides would be similar.   

46.  In view of my rejection of D2’s evidence and my findings that the plaintiff or its employees had not committed any breaches of duty or contract against the defendants, it follows that the defendants’ counterclaim must fail.  There is simply no evidence that the plaintiff had breached its duty to safeguard the interests of D1 by failing to obtain a reasonable price for the Osmanthus Path Properties.  On the evidence before me, the offer from Smart Base was the only offer that D1 received during the material period of time.  There is no evidence of any or any potential higher offer. Therefore, it is unnecessary for me to make a decision on the market value of the Osmanthus Path Properties. 

47.  However, for completeness in case I were wrong about the defendants’ counterclaim, I would say that the defendants have not discharged their burden of proving the transacted price was not a reasonable price at the time.  It is because there is no evidence before me as to whether it was permissible to convert the two semi-houses houses into one detached house and if so, whether any licences or permissions were required and how the conversion could be done.  On the other hand, there is some evidence from PW1 that the conversion may contravene the Deed of Mutual Covenant of Palm Springs.  In short, the defendants have failed to discharge their burden of proof in respect of a factual basis of the opinion of their surveyor. 

Conclusion

48.  I find in favour of the plaintiff’s claim against the defendants and dismiss the defendants’ counterclaim against the plaintiff. 

49.  The defendants are to pay the plaintiff the outstanding commission in the total amount of $172,000; such amount carries an interest at prime + 1% from the date of the writ to the date of this judgment and thereafter at the judgment rate until full payment. 

Costs

50.  I make an order nisi that the defendants are to pay the plaintiff’s costs, with certificate of counsel, to be taxed if no agreed.