CHESTERTON PETTY LTD. v. FRED GROENEVELD

DCCJ 22979/98

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 22979 OF 1998

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JUDGMENT

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1. The Plaintiff carries on the business of estate agent and property consultant. By an alleged "Appointment of Agent" agreement signed by the Defendant on 8th September 1998 ("the Agreement"), the Defendant undertook to pay commission to the Plaintiff in the case that he or his agent rented the premises known as 10th Floor, No. 26 Nathan Road, Tsimshatsui, Kowloon ("the Premises"). After the signing of the Agreement, the Defendant's company, Euro Bag (Five Stars Collection) Ltd. ("Euro Bag"), rented the Premises through another estate agent, and the Defendant refused to pay commission to the Plaintiff pursuant to the Agreement. As a result, the Plaintiff brings the present action against the Defendant to claim for the commission and other damages for breach of the Agreement.

Evidence adduced in trial

(i) The Plaintiff's evidence

2. The Plaintiff's senior manager of the Kowloon Commercial Division, Ms. Becky Chan ("Ms. Chan"), testified on behalf of the Plaintiff. She first approached Euro Bag in July 1998 to enquire whether the latter would need the Plaintiff's service to rent an office premises. Subsequently, Ms. Chan spoke with the Defendant in a telephone conversation on 1st September 1998 and the Defendant told her that Euro Bag was interested in leasing an office in Tsimshatsui. During that telephone conversation, Ms. Chan also told the Defendant that the Plaintiff would charge half month's rental as commission for the premises introduced.

3. On 8th September 1998, Ms. Chan brought the Defendant to view the premises as stated in the recommended list prepared by her. After viewing the Premises which was included in the said list, the Defendant had expressed an interest in leasing the Premises. At that time, the asking rent of the Premises was $17 per square foot, and the Defendant requested Ms. Chan to make a counter-offer of $11.5 per square foot to the landlord.

4. Prior to the viewing of the Premises, Ms. Chan had handed a copy of the Agreement to the Defendant to sign. However upon the request of the Defendant, the Agreement was only signed after the viewing of the Premises near the entrance of the building in which the Premises was situated.

5. After the viewing of the Premises, Ms. Chan approached Mr. Samson Heau of the landlord's agent, Jones Lang Wootton ("JLW"). Mr. Heau told Ms. Chan that the landlord would not accept an offer of less than $17 per square foot. The Defendant initially refused to accept the landlord's offer, but he later called Ms. Chan on 15th September 1998 saying that his headquarters had approved the proposed tenancy, and he also asked the Plaintiff to provide him with an offer letter so that he could send it to his headquarters for formal approval. Ms. Chan then contacted Mr. Heau for the preparation of the offer letter, and she also disclosed the identity of the prospective tenant to the landlord. On 16th September, the Plaintiff sent a letter to JLW confirming the Defendant's offer and stating that the Plaintiff would entitle to receive 50% of the commission earned by JLW from the landlord. After receiving such letter, JLW prepared the draft tenancy agreement and the Plaintiff sent the same to the Defendant for perusal. Shortly after that, Ms. Chan received a call from the Defendant saying that his headquarters had considered the rent too high and requesting the Plaintiff to withhold further action.

6. Subsequently on 18th September, the Plaintiff learned from Mr. Heau that the Defendant was making a second offer through another estate agent. Ms. Chan then confronted the Defendant who told her that his agent, Centaline Property Agency Ltd. ("Centaline"), was prepared to waive the commission from him. On 21st September, Ms. Chan received a fax dated 4th September 1998 from the Defendant terminating "the Plaintiff's service". The Defendant's company, Euro Bag, eventually rented the Premises through Centaline at a rent of $17 per square foot with all other material terms the same.

7. According to Ms. Chan, she had repeatedly asked Mr. Heau whether the landlord could reduce the rent to less than $17 per square foot, but Mr. Heau's replies were all in the negative. To assure the Defendant that this was the lowest offer made by the landlord, she even invited the Defendant to attend a conference with JLW.

(ii) The Defendant's evidence

8. The Defendant testified in the trial, and he was a director and general manager of Euro Bag. According to him, he first knew about the Premises through an article in a newspaper. He then approached Ms. Chan to see whether the Plaintiff could offer assistance to Euro Bag to rent the Premises. On 8th September 1998, Ms. Chan did not show him the Agreement before the viewing of the Premises, and he was only asked to sign on the same after the viewing.

9. After the viewing, the Defendant instructed Ms. Chan to make a counter-offer of $11.5 per square foot. He did not receive any reply and so he called Ms. Chan on 10th September. According to him, Ms. Chan told him that it would not be possible to get a rent of less than $17 per square foot. The Defendant was not very happy with this reply and so, through the introduction of a friend, he approached one Ms. Cassandra Li of Centaline ("Ms. Li"). Ms. Li told the Defendant that it was possible to rent the Premises at $16 per square foot. However after making enquiry with JLW, Ms. Li told the Defendant that the landlord had already received an earlier offer of $17 per square foot from the Defendant, and so the landlord would not accept another lower offer. The Defendant proceeded to rent the Premises through Centaline at a rent of $17 per square foot. He denied that he had not paid any commission to Centaline, but he refused to pay the commission to the Plaintiff because, according to him, his company had not received any service from the Plaintiff.

10. Ms. Li of Centaline also testified on behalf of the Defendant. According to her, she first came to know the Defendant in mid-September 1998 through the introduction of her colleague. The Defendant had expressed an interest in renting an office in Tsimshatsui and so she arranged the Defendant to view a number of office premises including the Premises. After the viewing, she told the Defendant that she could try to negotiate for a rent of $16 per square foot for the Premises. When she approached Mr. Heau of JLW, Mr. Heau told her that the landlord had already received an earlier offer from the Defendant, and so the landlord would not accept another lower offer. The Defendant's company, Euro Bag, eventually rent the Premises through Centaline at a rent of $17 per square foot, and Centaline also received the agreed commission from the Defendant.

Grounds of defence

11. It is the Plaintiff's case that since the Defendant's company has eventually rented the Premises introduced by the Plaintiff, the Defendant is liable to pay the commission pursuant to the Agreement. According to the cases of L & D Associates v. Wu Siu Keung, unreported, CA No. 59 of 1987 and L & D Associates v. Chan Man Chon Madalena [1987] 2 HKC 237, CA, such kind of agreement signed by a tenant does have contractual effect and the agent can recover commission from such tenant whether or not the agent concluded the bargain on his behalf. The Defendant does not seem to dispute the aforesaid, but it seeks to deny liability on the following 3 grounds.

(i) Failing to disclose interest in the subject transaction

12. The Defendant first raised such ground of defence in the final submission of its counsel. As I understand it, the Defendant is complaining that the Plaintiff has been acting as agent for both the landlord and the Defendant, and as the Plaintiff has not fully disclosed its interest in the subject transaction, the Agreement is not valid and the Defendant is not liable to pay commission to the Plaintiff. It is common ground that the Plaintiff has expressly disclosed its entitlement to commission from the landlord in the Agreement, however the Defendant still complains that the Plaintiff has not disclosed: (i) the amount of the commission; and (ii) the condition under which the Plaintiff was entitled to the commission, and hence the Plaintiff has failed to discharge its duty of disclosure.

13. When the Defendant's counsel first raised such defence in the final submission, both the Plaintiff's counsel and I were totally taken by surprise as such defence had not been pleaded or put forward in cross-examination. In any event, Mr. Cheng for the Defendant refers me to the case of Richard Ellis Ltd. v. Van Hong-tuon [1988] 1 HKLR 169 and argues that it is not necessary for the Defendant to plead such defence. In the said case, the plaintiff acted as an agent for a vendor in the sale of a property at an agreed commission. The defendant, through the introduction of the plaintiff, viewed the premises and signed an agreement with the plaintiff which included a provision about the payment of commission. The defendant eventually purchased the subject property, but refused to pay commission to the plaintiff on the ground that the plaintiff had not disclosed his entitlement to commission from the vendor to the defendant. In the Court of Appeal, it was argued by the plaintiff's counsel that the court was not entitled to entertain such a plea as it had not been pleaded in the Defence. However, the Court of Appeal disagreed and held that, despite the lack of such a plea in the Defence, the plaintiff still had a duty to prove his case, including the fact that he had discharged his duty about the disclosure of conflicting interest, before the plaintiff could establish a claim for commission.

14. In my view, the facts in the Richard Ellis case are slightly different from the present one. In the said case, the plaintiff had not disclosed anything about his entitlement to commission to the purchaser. However in the present case, the Plaintiff did make such disclosure to the Defendant but the latter complains that such disclosure was not sufficient. In my judgment, a defendant relying on the defence of insufficient disclosure should properly plead the same in a Defence. Indeed, whether the disclosure of interest is sufficient depends on a number of factors, including the details of the agreement made between the agent and the third party. Without knowing that the adverse party is going to rely on such defence, it is very difficult for a party to appreciate the extent of the complaint and to deal with it accordingly.

15. In any event, I am prepared to deal with such defence in the absence of such a plea in the Defence. According to the evidence of the present case, it is not clear what was the agreement made between the Plaintiff and JLW relating to the payment of commission. Although Ms. Chan testified that there was an understanding between the said parties about the payment of commission, it is not known whether there was in fact such an agreement made between them. It was also quite possible that the Plaintiff had already disclosed all the interest in the transaction, as there was no agreement between the Plaintiff and JLW on the amount of commission when the Defendant signed the Agreement on 8th September 1998. Hence on the facts of the present case and in the absence of such a plea in the Defence, I am satisfied that the Plaintiff has proved its case by disclosing its entitlement to commission from the landlord in clause 4 of the Agreement. To require the Plaintiff to prove that he should have disclosed more information, if any, and in the absence of such a plea in the Defence, is in my judgment too onerous a duty on the part of the Plaintiff.

16. Further it appears to me that the Defendant is also estopped by the express wordings in clause 4 of the Agreement to deny liability in the present case. Clause 4 of the Agreement reads as follows:

"4. I am fully aware that you are also charging commission from owners of these premises and to this I have no objection."

17. In my judgment, the said clause 4 expressly provides that the Defendant would not raise any objection to the Plaintiff receiving commission from the landlord. The Defendant had signed on the Agreement voluntarily, and so it would be quite inequitable for the Defendant to go back on his words and to use the same reason to deny liability to pay commission. Hence by reason of the aforesaid, the Defendant's first ground of defence fails.

(ii) Past consideration

18. It is the Defendant's case that he only signed the Agreement after the viewing of the Premises, and so the Defendant submits that the consideration for the Agreement was past. Like the first ground of defence, this defence had not been pleaded and the Defendant first raised the same in the final submission of his counsel.

19. For this particular ground of defence, there is a dispute between the parties as to what actually happened on the day of the viewing of the Premises. According to Ms. Chan of the Plaintiff, she did hand over a copy of the Agreement to the Defendant prior to the viewing and asked him to sign, but upon the request of the Defendant, the Agreement was signed shortly after the viewing of the Premises. On the other hand, the Defendant maintains that he was only asked to sign the Agreement after the viewing.

20. After hearing their evidence and observing them in the witness box, I would prefer to accept the evidence of Ms. Chan over that of the Defendant. According to my observation, Ms. Chan was able to give her evidence in a clear manner. She was able to recall all the minute details of the events and conversation between the parties, and her evidence remained unshaken during cross-examination. Hence I believe that she was telling the truth.

21. On the other hand, I do not accept that the Defendant's evidence is reliable. Firstly, his recollection of the events and the dates is far from satisfactory. At one stage of his evidence, he mentioned that he first saw the newspaper article about the Premises in the end of August 1998. However, this is different from what he said in his statement and cross-examination. In his statement, he mentioned the date was 8th September 1998 and during cross-examination when he was shown the publishing date of the newspaper article, he admitted the date should be 2nd September 1998. Another instance about the confusion of the dates relates to the time when the Defendant first approached Ms. Li of Centaline. In his statement, he said he first approached Ms. Li on 17th September 1998. However in a letter written by the Defendant to Centaline which is included in page 74 of the trial bundle, Centaline was appointed as an agent of Euro Bag a few days earlier on 14th September. These dates do have great implication as they affect the sequence of events leading up to the leasing of the Premises, and it is quite difficult to understand why the Defendant made frequent mistakes about such dates.

22. Equally difficult to understand is why the Defendant back-dated 2 fax messages to the Plaintiff. According to the Defendant, he had sent 2 fax messages on 21st September 1998 to Ms. Chan, which are included in pages 67 to 69 of the trial bundle, outlining the reasons why he was not satisfied with the work of the Plaintiff and seeking to terminate the Plaintiff as an agent of Euro Bag. The interesting thing to note is that these messages, with much coincidence, were both erroneously dated 4th September 1998. The Defendant explained that the correct date should be 14th September, but it is difficult to understand why the Defendant should have back-dated the 2 fax messages in the first place. This certainly casts some doubt on the credibility of the Defendant's evidence.

23. Finally, I must say that certain part of the Defendant's evidence is quite inconceivable. In his evidence, the Defendant all along maintained that he had not read the Agreement when he signed the same on 8th September 1998. However being a general manager and a director of a well-established company, it is quite difficult to understand why he could have been so careless in not reading the Agreement before signing the same. Obviously the Defendant was not very happy with the service provided by the Plaintiff because he suspected that Ms. Chan had not negotiated for a lower rent on his behalf, and as a result he had to justify the engagement of the second estate agent. However by reason of the aforesaid, I do not find his evidence convincing.

24. Having made the aforesaid findings, I do not accept that the consideration for the Agreement was past. In paragraph 3-026, volume 1 of the 28th edition of Chitty on Contracts, the learned authors said the following:

"In determining whether consideration is past, the court are not, it is submitted, bound to apply a strictly chronological test. If the giving of the consideration and the making of the promise are substantially one transaction, the exact order in which these events occur is not decisive."

25. In the present case, a copy of the Agreement was handed to the Defendant to sign before the viewing, and only upon the request of the Defendant, the Agreement was signed shortly thereafter. In such circumstances, the signing of the Agreement and the viewing of the Premises were so closely related that they were substantially parts of one transaction. Hence, the fact that the Agreement was signed shortly after the viewing of the Premises did not make the consideration past.

26. Further according to Ms. Chan, she had told the Defendant in the telephone conversation on 1st September 1998 that the Plaintiff would charge half month's rental as commission for the premises introduced. With such knowledge, the Defendant nevertheless proceeded to request the Plaintiff to introduce the Premises to him, to view the Premises and to negotiate for a lower rent on his behalf. In such circumstances, such acts were done by the Plaintiff with the understanding that payment would be made, and so it would not be possible now for the Defendant to deny liability on the ground that the consideration for the Agreement was past (see Chitty on Contracts, 28th ed., vol. 1 para. 3-028).

(iii) The Plaintiff was in breach of his duty to negotiate for a lower rent

27. With respect, I must say that the Defence prepared by the Defendant is far from satisfactory, and so I have asked Mr. Cheng to clarify his defence at the opening of the Defendant's case. According to Mr. Cheng, the Defendant's defence can be summarised as follows: the Plaintiff was in breach of its duty to negotiate for a lower rent for the Defendant, and so the Plaintiff had committed a fundamental breach of the Agreement and was also in breach of an express term thereof, and so the Defendant is not liable to pay any commission to the Plaintiff.

28. If that is the defence adopted by the Defendant, I am of the view that it has not been properly pleaded. In such circumstances, I had asked Mr. Cheng whether he would like to amend his Defence, but he replied that the Defendant had no intention of doing so. Later and quite surprisingly, Mr. Cheng did not made any submission on such defence in his final submission as if he had abandoned the same.

29. At this stage, I still do not quite understand the stance of the Defendant in relation to such defence. In any event, I am of the view that the Defendant has not proved such defence in the trial. In law, a person who alleges a breach of the agreement must prove such allegation. In order to establish this defence, the Defendant must be able to prove that: (i) the landlord was willing to accept an offer of less than $17 per square foot; and (ii) the Plaintiff was in breach of its duty in refusing to negotiate for a lower rent. In other words, if the landlord had all along insisted on a rent of not less than $17 per square foot, it is very difficult for the Defendant to say that the Plaintiff was in breach of its duty.

30. In the present case, both the landlord and Mr. Heau of JLW have not been called to testify. On the other hand, Ms. Chan said in her oral testimony that the landlord had all along insisted on a rent of not less than $17 per square foot, and she even invited the Defendant to attend a conference with JLW to confirm the same. In my judgment, what is fatal to the Defendant's case is that there is no evidence to contradict Ms. Chan's evidence in this regard. All Ms. Li of Centaline could say was that it was possible for her to negotiate for a rent of $16 per square foot, but without any guarantee of success. Hence without any evidence to the contrary, I accept that Ms. Chan had in fact discharged her duty by negotiating for a lower rent on the Defendant's behalf, and it was only upon the landlord's insistence that the Plaintiff failed to obtain a lower rent. The Defendant's third ground of defence therefore also fails, and judgment should be granted in favour of the Plaintiff for the commission claimed.

Is the Plaintiff entitled to claim anything more than the agreed commission?

31. Apart from the agreed commission, the Plaintiff is also claiming for the commission that it would otherwise be able to obtain from the landlord, had the Defendant rented the Premises through the Plaintiff, as damages for breach of contract. On such issue, I am quite surprised that both counsel did not make any submission in relation to the same. However after construing the terms of the Agreement, I am of the view that the Plaintiff is not entitled to claim anything more than the agreed commission that the Defendant has undertaken to pay under the Agreement.

Clause 2 of the Agreement provides the following:

"2. In consideration of your introduction of the premises listed hereunder, I agree to pay you the commission equivalent to 1% of the purchase price if I purchase, or 1/2 month's rental if I rent any of these premises."

32. In my judgment, the Defendant, by virtue of the said clause 2, only undertook to pay the Plaintiff half month's rental as commission if he rented the Premises. He had not provided any assurance that the Plaintiff would also be able to receive the commission from the landlord. Although clause 3 of the Agreement does seem to suggest that the Plaintiff has been appointed as some kind of "exclusive agent", I am of the view that the damage for the breach of that undertaking is limited to the commission that the Defendant has undertaken to pay under clause 2. Hence based on the terms of the Agreement and in the absence of any express wordings to the contrary, I do not accept that the Plaintiff is entitled to claim anything more than the agreed commission.

33. Based on the aforesaid, I grant judgment in favour of the Plaintiff in the sum of $56,508.00, being half month's rental, together with interest thereon at the existing judgment rate, 11.5%, from the date of the Writ to the date of judgment and thereafter at judgment rate. I also make an order nisi that the Plaintiff is entitled to the costs of this action with certificate for counsel. The order nisi is to be made absolute after the expiration of 14 days from the date of the handing down of this judgment.