WISECAL LTD v. CONWELL INTERNATIONAL LTD AND ANOTHER

HCA841/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 841 OF 2008

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  J U D G M E N T

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Introduction

1. This action concerns the property known as Flat A on the 20^thFloor of Block 1 and Car Parking Space No. 15 on Level CP4 at Pacific View, 38, Tai Tam Road, Hong Kong (“the property”).

2. The 1^st defendant (“Conwell”) is and was at all material times the registered owner of the property.  The sole shareholder and director of Conwell is Jenny Tseng Ie Tean (“Jenny”).

3. The 2^nd defendant (“Francis”) is a friend of Jenny.  

4. On 1 January 2008 Francis signed purportedly for and on behalf of Conwell a preliminary sale and purchase agreement made on 1 January 2008 between Conwell as the vendor and the plaintiff as the purchaser for the sale of the property by Conwell to the plaintiff on the terms and conditions as set out therein (“the preliminary agreement”).  The preliminary agreement is at pages 490 and 491 of Bundle B.

5. By clause 2 of the preliminary agreement it was agreed that the purchase price of the property was HK$22 million payable by the plaintiff to Conwell as follows:

(i) HK$1,100,000 to be paid on the signing of the preliminary agreement as deposit;

(ii)     HK$1,100,000 to be paid on the signing of the formal sale and purchase agreement on or before 14 January 2008 as balance of deposit;

(iii)    HK$19,800,000 to be paid upon completion on or before 18 March 2008 as the balance of the purchase price.

6. By clause 8 of the preliminary agreement it was provided that all deposits payable by the plaintiff were to be paid to Conwell’s solicitors as stakeholder.

7. By clause 12 of the preliminary agreement it was provided that Conwell as the vendor would be represented by Messrs Hampton,Winter and Glynn (“HWG”).

8. There were other express terms and conditions in the preliminary agreement to which I shall refer later.

9. On 1 January 2008 Francis also accepted a cheque from the plaintiff for the sum of HK$1,100,000 made payable to HWG which he later handed over to HWG.

10. On 3 January 2008 the completion date was amended to 28 February 2008 instead of 18 March 2008.  The amendment was made by amending the date in the preliminary agreement and initialing the same.  This was done at the offices of HWG on 3 January 2008.  Francis initialed the amendments purportedly for and on behalf of Conwell. A copy of the amended preliminary agreement is at pages 502 and 503 of Bundle B.

11. Francis did not provide a copy of the preliminary agreement to Conwell or to Jenny at any time.

12. On 11 January 2008 Jenny obtained a copy of the preliminary agreement through her assistant Benjie from HWG.  Jenny and Benjie were away from Hong Kong at all material times.  When Benjie returned to Hong Kong he obtained a copy of the preliminary agreement from HWG which he provided to Jenny.  She immediately instructed solicitors Messrs Peter K. S. Chan & Co. (“PKSC”)to act for Conwell.

13. PKSC wrote to HWG on 12 January 2008 stating that it was on 11 January 2008 that their client was given a copy of the preliminary agreement and put on record that Conwell had never given any authority to Francis to sign the preliminary agreement on its behalf.

14. HWG replied to PKSC by its letter dated 14 January 2008 stating that Francis had been authorised to enter into the preliminary agreement on behalf of Conwell.

15. On 14 January 2008 HWG also wrote to Messrs P.C. Woo & Co. (“PCW”) then solicitors for the plaintiff informing them that they had no further instructions to act in the sale of the property.  They also enclosed their firm’s cheque for HK$1,100,000 thereby returning the initial deposit to the plaintiff.  HWG also informed PCW that PKSC were acting for Conwell.

16. By clause 2 of the preliminary agreement the further deposit of HK$1,100,000 was to be paid by the plaintiff upon signing of the formal sale and purchase agreement on or before 14 January 2008.

17. By a letter also dated 14 January 2008 PCW wrote to PKSC asking them to confirm that they were acting for Conwell in the sale of the property so that the further deposit of HK$1,100,000 could be sent to them.

18. On the same day 14 January 2008 PKSC replied stating that Francis had never been authorised to sign the preliminary agreement on behalf of Conwell.

19. By a letter dated 18 January 2008 PCW replied to PKSC denying that Francis was not authorised by Conwell to enter into the preliminary agreement on its behalf.  They also referred to clause 7 of the preliminary agreement and demanded payment of HK$1,100,000 being the liquidated damages payable under clause 7.

20. Conwell refused to pay the said or any sum to the plaintiff.

21. On the plaintiff’s case Conwell has repudiated the preliminary agreement.  By PCW’s letter dated 18 January 2008 to PKSC the plaintiff has accepted Conwell’s repudiation.  The plaintiff’s case is that the preliminary agreement was discharged by Conwell’s breach which amounts to a repudiation of the preliminary agreement which the plaintiff has accepted.  

22. This action was brought by the plaintiff against Conwell as the 1^st defendant for the sum of HK$1,100,000 as liquidated damages under clause 7 of the preliminary agreement.  Alternatively, the plaintiff claims against Francis as the 2^nddefendant for damages for breach of warranty of authority in the event that it is held that Francis did not have the authority to enter into the preliminary agreement on behalf of Conwell.

23. Conwell denies that it is liable to the plaintiff.  Francis also denies that he is liable to the plaintiff.

24. There is also a counterclaim against the plaintiff by Conwell.  On 18 January 2008 the plaintiff filed an application to the Land Registry for the registration of the preliminary agreement against the property.  The preliminary agreement is pending registration and Conwell counterclaims for an order that the plaintiff do forthwith withdraw its application for registration.  Declaratory relief is also claimed.  There is also a counterclaim for damages which was not pursued at trial.

The issues

25. The plaintiff’s case is that the preliminary agreement was entered into by Francis with the authority of Conwell.  This is denied by Conwell.  Francis pleads specifically by paragraph 2.3 of his defence that he was at all material times authorised to make the preliminary agreement for and on behalf of Conwell.

26. It was accepted by counsel at trial that the main issue is whether Conwell had authorised Francis to enter into the preliminary agreement for and on behalf of Conwell.

27. It is for the plaintiff to establish that Conwell had authorised Francis to enter into the preliminary agreement for and on behalf of Conwell.

28. Apart from the main issue there is also an issue as to whether Conwell through Jenny “subsequently confirmed or alternatively, ratified” Francis’ authority to enter into the preliminary agreement as pleaded in paragraph 10.3 of the defence of Francis.

29. There was no issue as to the amount of damages claimed by the plaintiff in the sum of HK$1,100,000.

30. It was accepted by Mr Wong, for Conwell, and by Mr Lin, for Francis, that if it is found that Conwell had authorised Francis to enter into the preliminary agreement then the plaintiff would be entitled to damages against Conwell in the sum of HK$1,100,000 as claimed and that if it is found that Conwell had not authorised Francis to enter into the preliminary agreement then the plaintiff would be entitled to damages in the said sum for breach of warranty of authority against Francis.

31. It was also accepted by Mr Lam, for the plaintiff, that if it is found that Conwell had not authorised Francis to enter into the preliminary agreement then Conwell would be entitled to an order that the plaintiff do withdraw its application for registration of the preliminary agreement at the Land Registry against the property.

The witnesses

32. I heard evidence from

(1)  Wong Yin Ling (“Ms Wong”) a director of the plaintiff;

(2)  Annie Chan Sun Sun (“Annie”) an estate agent employed by Centaline Property Agency Ltd (“Centaline”);

(3)  Jenny; and

(4)  Francis.

33. I have no hesitation in accepting the evidence of Ms Wong and Annie.  I find that they are honest, truthful and reliable witnesses.

34. Ms Wong and Annie never met Jenny and did not have any communication with her.  Where Ms Wong and Annie’s evidence is at variance with Francis’ evidence, I have no hesitation in preferring their evidence which I believe and accept to Francis’ evidence which I disbelieve and reject.

35. I accept parts of Jenny’s evidence which I believe and reject other parts which I do not believe.  I also accept parts of Francis’ evidence which I believe and reject other parts which I do not believe.  I shall deal with this later when dealing with the evidence.

The evidence and findings

36. Much of the background facts are undisputed.

37. Jenny is a well known professional singer.  Jenny and Francis have been family friends since the early 1980s.

38. Francis is a businessman who has a travel business with companies in Hong Kong and parts of the Mainland.  He has also been personally investing in real property in Hong Kong held by his own companies.

39. In 2003 Francis recommended to Jenny that she should invest in a flat in the Bel Air development at Cyberport which was then an uncompleted development.  She agreed.  She was not in Hong Kong at the time but was living in the USA.

40. Jenny agreed to purchase Unit B on the 35^thfloor in Tower 2 and Car Park No. 14 on Car Park Level 2 of Residence Bel Air (“the Bel Air flat”).

41. Because of the outbreak of SARS in Hong Kong Jenny who was in the USA did not come back to Hong Kong to sign the documentation for the purchase of the Bel Air flat. She executed a power of attorney dated 1 April 2003 appointing Francis as her agent to sign the purchase contract on her behalf for the purchase of the Bel Air flat.

42. Francis suggested to her that she should acquire a shelf company to purchase and to own the Bel Air flat.  She agreed.  Conwell was acquired for that purpose.  

43. Jenny and Francis were made directors and shareholders of Conwell but the company belonged to Jenny.  Jenny held 9,999 shares out of the 10,000 shares issued and paid up.  Francis held 1 share for Jenny.

44. Francis as a director and for and on behalf of Conwell signed the formal sale and purchase agreement made on 10 April 2003.  

45. Mr Francis Rodrigues (“Rodrigues”) of HWG, who was a solicitor known to Francis, was engaged by Francis to act as the solicitor for the acquisition of Conwell and for the purchase of the Bel Air flat by Conwell.

46. Jenny sold the Bel Air flat in 2004 and made a substantial profit.  It was purchased by Conwell for HK$7,659,000 and was sold by Conwell as confirmor to the purchaser for HK$11,100,000.  She signed the agreement for sub-sale and sub-purchase of the Bel Air flat made on 31 March 2004 on behalf of Conwell as confirmor.

47. It is common ground that Jenny gave Francis a valuable gift as a reward for his help in acquiring the Bel Air flat for her through Conwell. She gave him a gent’s emerald ring valued at a few hundred thousand dollars.

48. It was in Jenny’s nature to reward those who had assisted her as she did not want to be obligated to them.  This was known to Francis.  Jenny gave evidence, which I accept, that Francis never asked her for any gifts.  

49. Francis had also received a mobile phone from Jenny in or about 1983 or 1984, which was then worth about $22,000 when he assisted her when she sold her ClearWater Bay home after her husband’s death.  Francis said in evidence, which I accept, that he was not involved in the sale of the Clear Water Bay home but that Jenny handled everything.  It was because she was having communication problems with the purchaser of the Clear Water Bay home that Francis assisted her in her communications with him.

50. Francis himself had purchased a flat in Pacific View and it was he who recommended to Jenny that she should purchase a flat there.  

51. It was on the day that she left Hong Kong to fly to the USA that Francis arranged a viewing of the property on her way to the airport.  There is no dispute that Jenny went to the property with Francis and an estate agent.  There were negotiations and a price was agreed.  Jenny agreed to purchase the property.  Francis said, and I accept, that the estate agent was from Midland Realty and not Centaline.  It was a hurried inspection but nevertheless Jenny was agreeable to purchase the property in the name of Conwell after the price was negotiated and agreed at HK$16.3 million at the inspection.  

52. Francis was a director of Conwell and signed the formal sale and purchase agreement made on 16 November 2004 on behalf of Conwell.  Rodrigues of HWG was also appointed by Francis to be the solicitor for Conwell in the purchase of the property.

53. Jenny gave evidence that she was unhappy about the commission charged by the estate agent.  Apparently Midland Realty charged 1% commission from Jenny for the purchase of the property.  They also charged a commission for the tenancy agreement to be entered into by the vendor who wanted to rent the property on completion of the purchase.  The matter was sorted out when Jenny saw the boss of Midland Realty and he reduced the 1% commission to 0.5% and waived the commission on the tenancy agreement.

54. Jenny was unhappy about being charged the extra commission by Midland Realty.  However, Francis was not responsible for this.  I so find. 

55. In April 2005 Jenny asked Francis to resign as a director of Conwell and to transfer the 1 share back to her.  This was done on 26 April 2005.  By then a limited company could have a sole shareholder and director.

56. Jenny said that she was unhappy with the accounting staff that Francis had provided to her to look after the accounts of Conwell whilst Francis was a director.  Apparently she blamed the accounting staff for not claiming expenses in relation to the Bel Air flat thereby resulting in what she considered to be an excess demand for tax from the Inland Revenue Department after the sale of the Bel Air flat.

57. Francis denied that his accounting staff was at fault.  Nothing turns on this in my view.  Jenny did not say in evidence that she told Francis that she was unhappy with him or his staff.  She did not tell him that was the reason why she had asked him to resign and return the 1 share to her.

58. It is clear, however, that Francis was asked to and did resign as a director of Conwell and returned the 1 share to Jenny by transferring the same to her on 26 April 2005.  I so find.

59. It is not disputed that on 25 November 2007 whilst Jenny was in San Francisco Francis sent Jenny an email in Chinese. He informed her that he had sold his Pacific View flat at a high price.  He offered to help her sell the property and expressed his view that he thought that it was time for her to sell the property and realize her profit.

60. Francis gave evidence, which I accept, that he felt that the property market in Hong Kong was a time bomb and that the bubble in the property market would burst which led him to sell his own flat at Pacific View.  He felt morally obliged to tell Jenny that he had sold his flat and to tell her that in his view it was time for her to sell the property and realize her profit.  He said that he would have his peace of mind after she sold the property.  He mentioned that when she bought the property there was the unhappy incident with the estate agent over the commission charged by them. He hoped that by helping her sell the property with the substantial profit he would have his peace of mind.  I accept Francis’ evidence on this matter.

61. It seems to me and I so find that he genuinely felt that the property market would collapse and that he wanted to help Jenny realize a handsome profit by helping her sell the property. By so doing he would have his peace of mind.  

62. Jenny was obviously not in a hurry to respond to Francis’ email.  She only wrote back by email on 20 December 2007 saying that she would like to list the property for sale at HK$21.8 million and asked him for his suggestion.  He wrote back also on 20 December 2007 saying that he would try and sell the property at HK$21.8 million or even higher.  He expressed the view that the property market was “crazy at the moment” and that it was time for her to sell.  He offered again to help her sell the property.

63.  Annie gave evidence that around the end December 2007 Francis telephoned her office and said that he represented the owner of the property and that he would like to put the property up for sale.  He gave some brief information about the property and left his contact telephone number.  The matter was followed up by her colleague Ms Yee.  I believe her and accept her evidence.

64. Ms Wong gave evidence that the plaintiff is in the business of investing in real property.  In or about the end of December 2007 Ms Yee informed Ms Wong that the property was available for sale.  Ms Wong, after consulting other directors of the plaintiff, informed Ms Yee that the plaintiff offered $22 million for the purchase of the property.  She was subsequently informed that the offer was accepted.  I believe her and accept her evidence.

65. Annie said that on 31 December 2007 she telephoned Francis and told him that they had located a potential purchaser who offered to pay HK$22 million for the property and that she and Ms Yee would charge 1% as their agency commission.  She also asked him whether he had an authorisation letter from Conwell.  He told her that he would make arrangements for the authorisation letter from the owner to be provided to them.  Annie knew from a Land Registry search that the registered owner of the property was Conwell.  She also knew from a company search that Jenny was the sole director of the company and that Francis was not a director.  Francis told Annie that he was a partner of Jenny.  

66. Francis asked Annie to send him the offer by SMS and he would contact his partner.  She duly sent the offer to him by SMS setting out the purchase price and the agency commission.

67. Francis denied that he ever told Annie that he would arrange for the authorisation letter from the owner to be provided or that he was a partner of Jenny.  He said that he was never asked whether he had the authority to sell the property or to sign the preliminary agreement.

68. After Francis obtained the offer of HK$22 million for the purchase of the property from Annie by SMS on 31 December 2007 he sent an email to Jenny on the same day informing her of the offer.

69. He mentioned in his email that he had negotiated the price to HK$22 million with 5% down payment and 5% upon signing the formal sale and purchase agreement.  He mentioned that he had given the name of HWG as the law firm to act for her.  He also said

“Please give me a green light and I shall lock in the sales for you”

70. He added that he did not want her to give him anything this time as she had already given him a big present already.  He was obviously referring to the past occasions when Jenny had rewarded him with a gift of an emerald ring after she sold the Bel Air flat and also a gift of a mobile phone after she sold the Clearwater Bay home.

71. Although he had not yet got a green light from Jenny to proceed with the sale he had obviously anticipated that he would get it otherwise, he would not have gone to the extent of naming HWG to Annie as the law firm to represent Conwell as vendor.

72. Annie gave evidence that on 1 January 2008 she received an SMS from Francis confirming the offer of HK$22 million, that the 1% agency commission fee was agreeable to Conwell and that completion was to be on or before 18 March 2008.

73. She then prepared the preliminary agreement.  

74. There is no dispute that on 1 January 2008 Annie and Ms Yee met Ms Wong with the preliminary agreement in hand.  The terms were filled in and as they were agreeable to the plaintiff, Ms Wong signed the preliminary agreement on behalf of the plaintiff as purchaser.  Annie told her that the person who would sign for the owner would receive an authorisation letter from Conwell authorising him to sign the preliminary agreement.  She also gave Annie the plaintiff’s cheque for HK$1,100,000 made payable to HWG as instructed by Annie and her colleague for the initial deposit.  She was told that HWG was representing the vendor.

75. There is also no dispute that at the time that Ms Wong signed the preliminary agreement Francis had not yet signed the preliminary agreement.

76. After having obtained Ms Wong’s signature on the preliminary agreement for and on behalf of the plaintiff and having received a cheque made payable to HWG for HK$1,100,000 for the initial deposit, Annie went with Ms Yee to Francis’ home on the same day 1 January 2008.  This was the first time that she had met Francis.  

77. Annie said that she asked Francis whether he had any authorisation letter from Conwell.  He did not produce any authorisation letter from the owner.  He said that he would arrange for the written authorisation. He told her that he would provide a company resolution and he telephoned his solicitor in front of them.  She said that Francis said that he had already got the oral agreement from the owner allowing him to represent the owner to sell the premises.  

78. Annie said that she relied on Francis’ representation that he had been verbally authorised to sign the preliminary agreement and she accepted his signature on the document as she trusted him.  He assured her that he had got the oral promise from the owner for him to represent the owner and so she accepted his signature on the preliminary agreement as signing for and on behalf of Conwell.  She also handed him the plaintiff’s cheque for HK$1,100,000 made payable to HWG.

79. Francis denied that when Annie came on 1 January 2008 to his home for him to sign the preliminary agreement he told her that he would arrange for a written authorisation from Conwell to be provided to Annie.

80. It was, in my view, imprudent of Annie to rely solely on the word of Francis whom she had met for the first time on 1 January 2008 and allowhim to sign the preliminary agreement purportedly on behalf of Conwell and to release the plaintiff’s cheque for the initial deposit to him without seeing some written authorisation from Conwell permitting him to do so.  I would observe that had she insisted on seeing a written authorisation or company resolution from Conwell authorising Francis to sign the preliminary agreement for and on behalf of Conwell before allowing Francis to sign the same the transaction would not have proceeded further and the preliminary agreement would not have been signed on 1 January 2008. 

81. Be that as it may, I have no hesitation in preferring the evidence of Annie to the evidence of Francis where there evidence is at variance. I believe and accept the evidence of Annie and disbelieve and reject the evidence of Francis.  I find that Francis did represent to her and her colleague that he had got the verbal authority of Jenny to sign the preliminary agreement and that he would provide them with a written authorisation shortly.  As instructed by Francis, Annie then followed up the matter with HWG and faxed the preliminary agreement to HWG.

82. Jenny gave evidence that she was very busy over the Christmas 2007 and the New Year 2008 period.  She was performing in concerts in New York on 25 and 26 December 2007 and on 6 and 7 January 2008 in Toronto.  It was her practice that for a week or so before her concerts she would spend most of her time preparing for the same including having rehearsals.  Also, on 28 December 2007 her daughter was hospitalised and had surgery in a hospital in San Francisco.  Jenny was with her during her hospitalisation.  So it is clear that the period from Christmas 2007 to early January 2008 she was very busy.  I believe her and accept her evidence on this. 

83. There is no company resolution of Conwell authorising Francis to enter into the preliminary agreement on behalf of Conwell.  Neither is there any written authorisation from Conwell or from Jenny authorising Francis to enter into the preliminary agreement on behalf of Conwell.

84. The plaintiff does not rely on any holding out by Conwell or Jenny to the plaintiff or to Centaline that Francis was ever authorised to sign the preliminary agreement on behalf of Conwell.

85. There is no dispute that after Francis’ email to her on 31 December 2007 there was one telephone conversation between Jenny and Francis.  The plaintiff and Francis rely on a verbal authorisation given by Jenny to Francis during the telephone conversation between Jenny and Francis in the early hours of 1 January 2008 Hong Kong time or the morning of 31 December 2007 San Francisco time (“the New Year phone call”).

86. Jenny and Francis have both given different versions of what transpired in the course of the New Year phone call.  

87. Jenny said that according to what she had written in her diary it was Francis who made the New Year phone call by calling her.  According to her Francis called her to wish her Happy New Year and they exchanged greetings.  Francis told her that he was having a party at the time and their conversation was about the party.  It was a casual conversation where they exchanged greetings and talked about the party.  She said that it was noisy at the time as there were a lot of people at the party at Francis’ house.  She was adamant that in that conversation they did not talk about the property.

88. Francis gave evidence that it was Jenny who made the New Year phone call and called him to wish him a Happy New Year.  It was at about 1.30 am on 1 January 2008 Hong Kong time.  He disagreed that it was very noisy at the time as some of the guests at his party had left.  When she called he was chatting with his friends and he went into the dining room so that he could talk to Jenny with no one else there. 

89. Francis said that in the course of the New Year phone call he told her again of the main terms of the offer made by the potential purchaser of her flat namely, the purchase price of HK$22 million with 5% down payment upon signing the provisional sale and purchase agreement and 5% further payment on 14 January 2008 and the balance payable on completion.  He also mentioned that completion was to be within two months.  

90. Jenny told him that she was waiting for a medical report and was a bit tense about the completion in two months.  Francis said that he suggested the auspicious date of 18 March 2008 as the completion date.  He said in evidence that he also told her that 1% agency commission would be payable to the estate agency.  According to him Jenny instructed him to proceed with the sale of the property.  

91. In evidence Francis said that he had forgotten to mention in paragraph 17 of his witness statement the fact that he had mentioned to Jenny that 1% agency commission would be payable to the estate agency.

92. Francis said that he considered that he had been verbally authorised by Jenny in the New Year phone call to sign the preliminary agreement.  He said that in the New Year phone call it was not formally mentioned that he would sign any agreement.  He was, however, adamant that he told her the terms and after she agreed to accept the offer he said to her that he would “do it tomorrow”.

93. On this dispute of fact, I prefer the evidence of Francis to the evidence of Jenny.   I believe Francis and disbelieve Jenny on what transpired during the New Year phone call.  In my judgment it is inherently improbable that Jenny did not discuss with Francis the offer that Francis had received for the property which he had relayed to her in his email on 31 December 2007 and which she had received before the New Year phone call.  I find that she called Francis and during the New Year phone call Francis told her again of the offer in the sum of HK$22 million with 5% deposit to be paid first, a further 5% to be paid on 14 January 2008 and the balance to be paid on completion.  Completion was to be on 18 March 2008 and 1% agency commission was to be paid by Conwell as vendor.  I find that Jenny agreed to this offer and that she verbally authorised him to sell the property on those terms.

94. It was in those circumstances that Francis felt that he was authorised to sign the preliminary agreement for and on behalf of Conwell on 1 January 2008. 

95. It is clear, however, from the evidence of Francis that no other terms were mentioned to Jenny during the New Year phone call.  Francis signed the preliminary agreement on 1 January 2008 which contained other important terms and conditions which were never mentioned to Jenny.  I so find.  

96. The plaintiff’s claim for liquidated damages is based on the express term in clause 7 of the preliminary agreement. That term was never mentioned to Jenny by Francis at any time during the New Year phone call or in any of the contemporaneous emails after that call.

97. Clause 7 of the preliminary agreement provided that

“ Should the Vendor after receiving the deposit paid hereunder fail to complete the sale in the manner herein contained the Vendor shall immediately compensate the Purchaser with a sum equivalent to the amount of the deposit as liquidated damages together with the refund of the deposit and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.”

98. Clause 7 is an important term obliging the vendor to pay liquidated damages equivalent to the deposit paid together with the refund of the deposit should the vendor fail to complete the sale in the manner set out in the preliminary agreement.

99. Other important express terms in the preliminary agreement were also never mentioned by Francis to Jenny during the New Year phone call or in any of the contemporaneous emails.  These include clauses 6 and10 of the preliminary agreement.

100. Clause 6 of the preliminary agreement provided that

“Should the Purchaser fail to complete the purchase in the manner herein contained the deposit shall be forfeited to the Vendor and the Vendor shall then be entitled at his absolute discretion to sell the said premises to anyone he thinks fit and the Vendor shall not sue the Purchaser for any liabilities and/or damages caused by the Purchaser’s default of this Agreement.”

101. Clause 10 provided that

“If in any case either the Vendor or the Purchaser fails to complete the sale and purchase in the manner herein contained, the defaulting party shall compensate at once the Agent HK$320,000.00 as liquidated damages.  The defaulting party shall be responsible for the payment of the stamp duty.”

102. Apart from the evidence of Jenny and Francis I have also considered the contemporaneous emails in the evidence before me as well as counsel’s submissions.

103. After signing the preliminary agreement on 1 January 2008 Francis sent Jenny an email telling her that

“I have sold your apartment in Pacific View at Hong Kong Dollars Twenty Two Millions (HKD22,00,000.00) and have collected 5% deposit of Hong Kong Dollars One Million and One Hundred Thousand Only (HKD1,100,000.00) for you stake hold under the law firm Hampton, Winter and Glynn.  The next 5% will be on January 14, 2008.  The completion date will be on or before March 18, 2008.  Since you are not in Hong Kong and the property is hold under a company I shall ask Francis Rodrigues to draft a board resolution for selling the property and at the same time appoint me to act on behalf of you if you felt appropriate.  Where is the company chop and seal?  Are they in Hong Kong or San Francisco?  The good news is you are coming back at the end of February 2008 so we could sort out everything by then…..”

104. It is clear that by this email Francis told Jenny that he had sold the property on the terms that he had mentioned in that email.  He did not, however, mention any of the other express terms of the preliminary agreement.  He did not attach a copy of the preliminary agreement to his email.

105. Jenny said that she was under the impression that the transaction was still in a negotiating stage and that no sale had been concluded.  She explained that she thought that the 5% deposit that Francis had collected was in her mind good faith or earnest money given by the potential purchaser. I do not believe her.  I do not believe that she ever thought that the deposit of HK$1,100,000 was good faith money or earnest money given by a potential purchaser.  This was never mentioned in any of the contemporaneous emails.  

106. Jenny had purchased property in Hong Kong before and knew that a deposit had to be paid when making a purchase.  In my judgment she knew that a deposit of 5% of the purchase price had been collected by Francis and was held by HWG as stakeholder.  She would have realised that some document must have been signed although she did not know what that document was.  She was never given a copy of the preliminary agreement at the time and it was never supplied by Francis to her.  

107. By her email to Francis sent on 2 January 2008 Jenny informed Francis that the company chops and seals were in San Francisco and that Benjie would bring them back to Hong Kong on 10 January 2008.  She said that she hoped the closing for the property would occur before 28 February 2008.  She said that she would be leaving for San Francisco on 1 March 2008 for surgery and that she would like everything to be done by the end of February 2008.

108. By his reply email also on 2 January 2008 Francis said

“I had mentioned to you that the closing date is March 18, 2008 and you had no objection therefore, I’ve signed it.  However, I got your point and I will try to fix it tomorrow.  I am sending you another two documents to sign.  Please have them printed out and sign and arrange to send them back to Hong Kong.

Trust me.  I’ll do all possible to change it to on or before February 28 2008.”

109. Francis also attached Rodrigues’ email to him attaching two documents one of which was a draft company resolution to be signed by Jenny.  This was a draft of a company resolution by Conwell to resolve that the sale of the property and the preliminary agreement signed by Francis “be approved, ratified and confirmed” and that Francis or a director of Conwell be authorised to sign the formal sale and purchase agreement and to execute the assignment of behalf of Conwell, affix the common seal of Conwell on the assignment of the property and all necessary documents on completion.  A copy of the preliminary agreement was never sent to Jenny by either Francis or HWG.  

110. Jenny said that she never saw the attached documents but accepts that she received those documents whilst she was in Toronto as they had been forwarded to Benjie by her daughter.  She did not read them but relied on Benjie to explain the documents to her. I believe her and accept her evidence on this.  It is clear that the draft documents attached to Francis’ email were never signed by Jenny.

111. There is no dispute that after receiving Jenny’s email of 2 January 2008 Francis called Annie to ask if the completion date could be changed to 28 February 2008.  He was later informed that the plaintiff agreed to the change and arrangements were made for them to attend the offices of HWG on 3 January 2008 so that the preliminary agreement could be amended to reflect the change in the completion date.

112. Ms Wong of the plaintiff, Annie and Ms Yee and Francis attended the offices of HWG on 3 January 2008 where they were attended by Rodrigues.

113. Annie gave evidence that Rodrigues explained to them that Francis would soon receive an authorisation letter from Jenny, the director of Conwell, authorising Francis to sign the documents relating to the transaction of the property.  I believe Annie and accept her evidence.  The amendments were made in relation to the date of completion and Ms Wong and Francis initialed the amendments in the preliminary agreement as shown in the amended preliminary agreement at pages 502 and 503 of Bundle B.

114. After they left the offices of HWG Ms Wong, Annie and her colleague were invited by Francis to view the property.  By that time he had received the keys of the property.  The plaintiff did not request a viewing of the property.  It was Francis who invited them to view it.  I so find.

115. There is a dispute of fact as to whether Francis asked for the keys of the property in the course of the New Year phone call.  He did not mention this in his witness statement but he gave evidence that he had asked Jenny for the keys in that phone call.  By 3 January 2008 he had already received the keys.  There is also a dispute as to whether Francis told Benjie that he wanted the keys to show to a friend.  

116. I prefer the evidence of Francis on this matter and I find that he did ask Jenny for the keys in the New Year phone call.  It would have been natural for him to ask for it as she had verbally authorised him to sell the property during the New Year phone call.  I do not believe that he ever told Benjie that he wanted to show the property to a friend.

117. The plaintiff was prepared to purchase the property without viewing it.  The plaintiff never asked to view the property before agreeing to purchase the property and entering into the preliminary agreement.

118. I do not think that much turns on whether Francis asked for the keys or not.  When Jenny was still in Hong Kong in 2007 before she left for the USA, the property was put up for sale with Centaline.  At one time the keys were even left with the management office of Pacific View for potential purchasers to view the property.

119. In Heard v Pilley (1869) LR 4 Ch App 548 it was held that a contract for the purchase of land made by an agent would be enforced although the agent was appointed merely by parol.

120. And in Rosenbaum v Belson [1900] 2 Ch 267 where instructions were given to an estate agent to sell real property with an agreement to pay a commission on the purchase price accepted, it was held that authority was given to the agent to make a binding contract including an agreement to sign an agreement for sale.

121. The facts of Rosenbaum are, however, clearly distinguishable from the facts in this case.  The estate agent received a deposit and signed a short agreement as agents for the vendor.  The agreement is set out in the report at page 267 as follows :

“It is hereby agreed between Messrs.  Dickson & Newman, as agents on behalf of the vendor Mr. L. Belson, and Mr. S. Rosenbaum, of 5, Bell Lane, Spitalfields, that this 11^th day of December, 1899, the said S. Rosenbaum has become the purchaser of the leasehold property (24 years) known and situate at (75-83) Wellesley Street, Stepney Green, for the sum of seven hundred and eight-five pounds (785Ɩ.), and that he has paid to the said Dickson & Newman the sum of seventy-eight pounds 10s. as a deposit and in part payment of the said purchase-money……...”

122. On the facts of Rosenbaum it was held that the estate agents were authorised to make that particular agreement for sale which was signed by the estate agent.  I would observe that it was a simple agreement which merely set out the purchase price which was agreed by the owner and the payment of the deposit to the estate agents.  No special terms or conditions were agreed by the estate agents on behalf of the owner.  It was also found as a fact that the defendant was told by the estate agents that they would sign a contract in exchange for payment of the deposit and that he assented to it.

123. In Keen v Mear [1920] 2 Ch 574 it was held that if an estate agent is instructed to sell a property at a certain price, those instructions involve authority to make a binding contract and to sign an agreement.  But the authority is limited to signing an open contract and does not authorise the agent to sign a contract with special conditions.

124. On the facts of Keen it was held that the estate agent had authority to sign an open contract on behalf of the owner but not the particular contract entered into.

125. Russell J said at page 579

“ …… In the case before me, the evidence shows that on December 14, 1918, Samuel Mear called on Cox, and Cox told him he had a purchaser who he thought would buy for 500Ɩ., and that thereupon Samuel Mear definitely instructed him to sell for 500Ɩ, clear of Cox’s commission.  Acting on these instructions Cox signed a contract for the sale to the plaintiff for 515Ɩ. In these circumstances, Cox had, in my opinion, authority to sign an open contract on behalf of Samuel Mear to sell the property for 515Ɩ. But had he authority to sign the particular contract here in question?  I think not.  It contains a special condition as to title, which might or might not be less favourable to a vendor than the title required under an open contract: see Lord Finlay’s statement of the law in McGrory v. Alderdale Estate Co……..”

126. Section 3(1) of the Conveyancing and Property Ordinance Cap 219 provides that no action shall be brought upon any contract for the sale of land unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged or by some other person lawfully authorised by him for that purpose.

127. An agreement for the sale of land which merely satisfies the formal requirements of a written memorandum leaving all other terms to be implied by law is called an open contract (paragraph 230.0193 Vol 16 2007 Reissue Halsbury’s Laws of Hong Kong).

128. On the facts as I have found Francis was in my judgment verbally authorised by Jenny in the course of the New Year phone call to sell the property on behalf of Conwell for HK$22 million with 5% deposit to be paid initially, a further 5% to be paid on or before 14 January 2008 with the balance to be paid on completion on 18 March 2008 and 1% commission to be paid by Conwell to the estate agency.  In my judgment Francis was only authorised to sign an open contract containing those terms.  He was certainly not authorised to sign the preliminary agreement on behalf of Conwell containing all the express terms therein mentioned including the important clause 7 which is the term relied on by the plaintiff in seeking liquidated damages in the sum of HK$1,100,000 against Conwell.  In my judgment Francis was not authorised to sign the particular contract being the preliminary agreement that he signed.

129. It was submitted by Mr Lin that the express terms in the preliminary agreement were standard terms.  I have no hesitation in rejecting that submission.  This has not been pleaded.  Quite apart from this, there has also been no expert evidence adduced to show that all the express terms in the preliminary agreement are standard terms.

130. It is abundantly clear on the undisputed evidence that the preliminary agreement was never sent to Jenny by either Francis or HWG.  It was only on 11 January 2008 that Benjie obtained a copy of it.  On 12 January 2008 PKSC on behalf of Conwell wrote to HWG making it clear that no authority had been given to Francis to enter into the preliminary agreement on behalf of Conwell.

131. Francis was evasive when giving evidence about why he did not send the preliminary agreement to Jenny after he signed it on 1 January 2008.

132. In evidence he said that the explanation for not sending her the preliminary agreement was that the date of completion had to be altered.  But the change of completion date was not mentioned until 2 January 2008.  And even after the completion date was amended in the preliminary agreement on 3 January 2008 he still did not send Jenny the amended preliminary agreement.  Francis also explained that he knew that she was busy with her concerts.  But that did not stop him from sending her an email on 2 January 2008 forwarding Rodrigues’ email to him with two attached documents.

133. Francis also said in evidence that it did not occur to him to send her the preliminary agreement because he had told her all the important matters in the New Year phone call and in the subsequent communications.  But he never told her of all the express terms of the preliminary agreement either in the New Year phone call or in the subsequent emails.

134. Francis was evasive and his explanations for not sending the preliminary agreement to Jenny were unconvincing.  I do not believe him. 

135. When Francis was presented with the preliminary agreement on 1 January 2008 by Annie it had already been signed by the plaintiff.  It seems to me that there would have been no difficulty for him to attach the preliminary agreement to an email to Jenny.  There would also have been no difficulty for him to telephone Jenny to inform her of all the express terms in the preliminary agreement and to ask Jenny whether she agreed to the same before signing it.

136. In my view it was imprudent of Francis to sign the preliminary agreement there and then purportedly on behalf of Conwell when Annie presented it to him on 1 January 2008 and to accept the plaintiff’s cheque for HK$1,100,000 without first obtaining Jenny’s agreement to the express terms contained in the preliminary agreement.

137. By paragraph 10.3 of his defence Francis pleads :

“ 10.3   the 1^st defendant through Ms. Tseng subsequently confirmed or, alternatively, ratified the 2^nd defendant’s authority to make the preliminary agreement:

10.3.1    by requesting the 2^nd defendant by an email sent to him on or about 2 January 2008 to vary the completion date from 18 March 2008 to 28 February 2008 on its behalf which he subsequently did on or about 3 January 2008 accordingly; and/or

10.3.2    by making the keys to the property available to the 2^nd defendant on or about 2 January 2008 so as to allow the plaintiff to view the property after the making of the preliminary agreement.”

138. Thus, the pleaded case of Francis is that by the two matters pleaded in paragraphs 10.3.1 and 10.3.2 Conwell through Jenny has subsequently confirmed or alternatively, ratified Francis’ authority to enter into the preliminary agreement.  The acts of Jenny relied on took place on 2 January 2008.  The first is by Jenny requesting Francis on 2 January 2008 to change the completion date from 18 March 2008 to 28 February 2008 and the second is by Jenny making the keys of the property available to Francis so as to allow the plaintiff to view the property after the making of the preliminary agreement.  No other acts are relied on as amounting to subsequent confirmation or ratification of Francis’ authority to enter into the preliminary agreement on behalf of Conwell. 

139. It is well settled that where ratification is effected by words, conduct or acquiescence, it can only be effected if the principal knows all the material facts (paragraph 15.036 Vol 1(2) 2008 ReissueHalsbury’s Laws of Hong Kong ).

140. In my judgment Jenny did not know all the material facts.  It was only on 11 January that Benjie obtained a copy of the preliminary agreement from HWG after he returned to Hong Kong.  Before that time Jenny had not been supplied with a copy of the preliminary agreement either by Francis or by HWG.  She did not know what terms had been expressly agreed by Francis when he signed the preliminary agreement.  On the facts as I have found, apart from the purchase price, the 5% initial deposit to be paid, a further 5% deposit to be paid on 14 January 2008 with the balance to be paid on completion on or before 18 March 2008 and 1% commission to be paid by Conwell to the estate agency, Jenny was not told of the other express terms as contained in the preliminary agreement including the important clauses 6, 7 and 10.  That being so, I fail to see how it can be said that the pleaded acts of Jenny on 2 January 2008 amount to a subsequent confirmation or ratification of Francis’ authority to make that particular contract being the preliminary agreement.

141. I find that there was neither subsequent confirmation nor ratification by Jenny of Francis’ authority to enter into the preliminary agreement on behalf of Conwell by the pleaded acts relied on by Francis.

142. The plaintiff has failed to establish that Francis was authorised to enter into the preliminary agreement on behalf of Conwell.  I find that Conwell is not bound by the preliminary agreement.  I dismiss the plaintiff’s claim against Conwell.

143. In my judgment the plaintiff was not entitled to apply to register the preliminary agreement with the Lands Registry against the property.  I find that Conwell is entitled to succeed on its counterclaim.  I give judgment to Conwell on its counterclaim against the plaintiff and make an order that the plaintiff do forthwith withdraw its application to the Land Registry for registration of the preliminary agreement in the Land Register of the property.  I also grant a declaration to Conwell that the preliminary agreement has no legal effect on Conwell and that it is not binding on Conwell.

144. There is no dispute that Francis has represented to the plaintiff and Annie that he was authorised to enter into the preliminary agreement with the plaintiff on behalf of Conwell.  As I have found that he was not so authorised, he is liable to the plaintiff for the damages claimed.  I give judgment to the plaintiff against Francis for damages for breach of warranty of authority in the sum of HK$1,100,000 with interest on the said sum at 1% above the best lending rate of HSBC from issue of the writ on 14 May 2008 until judgment and thereafter at judgment rate until payment.

145. I also make an order nisi for costs as follows:

(1) that the plaintiff do pay Conwell its costs of the action and its counterclaim;

(2)    that Francis do pay the plaintiff its costs of the action.