WISECAL LTD v. CONWELL INTERNATIONAL LTD AND ANOTHER

CACV 176/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 176 OF 2010

(ON APPEAL FROM HCA NO. 841 OF 2008)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Tang VP:

1.  By a Preliminary Sale and Purchase Agreement dated 1 January 2008 ("the Preliminary Agreement") which was signed by the 2^nd Defendant (Hung Tung Kit Francis) ("Francis") purportedly for and on behalf of the 1^st Defendant (Conwell International Limited) ("Conwell") as vendor and one Madam Wong Yin Ling for and on behalf of the Plaintiff as purchaser, Conwell agreed to sell and the Plaintiff agreed to purchase the property known as Flat A on the 20^th Floor of Block 1 and Car Parking Space No. 15 on Level CP4 at Pacific View, 38, Tai Tam Road, Hong Kong ("the Property") at a price of HK$22 million, subject to the terms and conditions therein contained. A deposit of HK$1.1 million was payable and paid upon the signing of the Preliminary Agreement. It also provided that HK$1.1 million should be paid upon signing of the formal agreement of sale and purchase on or before 14 January 2008 as balance of deposit; and then the balance of HK$19,800,000 should be paid upon completion on or before 18 March 2008 as balance of purchase price.

2.  The Preliminary Agreement was in a Centaline Property Agency Ltd's standard printed form which contained, inter alia, the following clauses in both English and Chinese:

Clause 6

"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."

Clause 7

"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."

Clause 10

"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."

3.  By a letter dated 14 January 2008, Messrs Peter K. S. Chan & Co. ("PKSC") writing on behalf of Conwell, alleged that Francis had no authority to enter into the Preliminary Agreement on behalf of Conwell, and refused to complete the sale of the Property in accordance with the Preliminary Agreement.

4.  The repudiation was accepted by a letter dated 18 January 2008, written by the Plaintiff's solicitors Messrs P. C. Woo & Co. ("PCW").  By the same letter, PCW demanded a sum of HK$1.1 million as liquidated damages payable by Conwell under Clause 7 of the Preliminary Agreement.

5.  As a result, the Plaintiff commenced the present action against Conwell, and in the alternative against Francis, if it be found that Francis signed the Preliminary Agreement without the authority of Conwell.

6.  Ms Tseng Ie Tean Jenny ("Jenny") was the sole shareholder and director of Conwell and the parties have proceeded on the basis that she was Conwell's alter ego.

7.  Conwell's Defence and Counterclaim was filed on its behalf by Messrs Amelia Cheung & Co. ("AC").  It is sufficient for the present purpose to note in the Defence, Conwell:

"4.   … specifically denied that the 2^nd defendant was authorized to sign any Preliminary Agreement.

……

7.   … denies that it had ever authorized the 2^nd Defendant to sign any preliminary sale and purchase agreement, including the Preliminary Agreement, to sell the Property."

8.  On the other hand, Francis alleged in his Amended Defence that he was authorized by Jenny during a telephone conversation on 1 January 2008 to sell the Property, alternatively that Jenny had confirmed or ratified the sale.

9.  In due course witness statements were filed by the parties.  In Jenny's witness statement, she asserted that she had never authorized Francis to sell her property, nor was there any confirmation or ratification of any authority to sell, on or after 1 January. 

10.  Some further background could be gathered from the judgment of Sakhrani J.  

11.  Jenny and Francis "have been family friends since the early 1980s"; that it was Francis who in 2003 recommended to Jenny that she should buy a flat in the Bel Air development; and that a shelf company, Conwell, was used for the purpose.  Conwell has always been wholly owned by Jenny.  However, at the time both Jenny and Francis were directors and shareholders, Jenny holding 9,999 shares out of the 10,000 shares issued and paid up.  Francis held the other share.  In April 2005, Francis resigned as a director of Conwell and transferred the 1 share back to Jenny.  By then a limited company could have a sole shareholder and director.  The Bel Air property was sold in 2004, and Jenny made substantial profit because it was purchased for HK$7,659,000 and sold for HK$11,100,000.

12.  Later, Francis bought a flat in Pacific View and he recommended to Jenny that she should buy one as well.  She agreed to do so. She agreed to buy a flat there for HK$16.3 million after an inspection.  Francis, who was then a director of Conwell, signed the formal sale and purchase agreement made on 16 November 2004 on behalf of Conwell.

13.  Then, on 25 November 2007 Francis sent Jenny an email, informing 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.

14.  Francis gave evidence that he had a telephone conversation with Jenny on New Year's Day during which Jenny authorized him to sell the Property for Conwell.  The learned judge made the following important finding of fact:

"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."

15.  After Francis had signed the Preliminary Agreement he sent an email to Jenny on 1 January 2008.  The learned judge went on to say:

"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."  

16.  However, the learned judge found against Francis on the basis that although he was authorized by Conwell to sell the Property, he had no authority to enter into an agreement which contained Clauses 6, 7 or 10. 

17.  In so finding against Francis, the learned judge relied on Keen v Mear [1920] 2 Ch 574.  The learned judge said:

"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."

18.  On appeal, Mr Edward Chan, SC, leading Mr Lin, made the point that Francis had no authority to enter into a preliminary agreement containing either Clauses 6, 7 or 10 had not been pleaded by Conwell. Indeed, the point was not raised by counsel acting on behalf of Conwell (probably for good reasons) but was raised by the learned judge for the first time during counsel's final submissions.  Mr Edward Chan, SC submitted that the learned judge was not entitled to disregard the fact that it was never Conwell's case that even if Francis had authority to enter into an agreement he had exceeded his authority in entering into a preliminary agreement containing any of these clauses.  Mr Chan submitted that had that been pleaded, Francis would have gone to court prepared to prove that they were standard terms.

19.  Jenny's case was clear.  It was her case that she had never authorized Francis to sell the Property.  She thought that Francis was doing no more than negotiating a sale on Conwell's behalf.  She has not asserted in her witness statement that even if Francis had authority to enter into a binding agreement on her behalf, the authority did not extend to entering into an agreement with these terms.  Her evidence was rejected by the learned judge, who, rightly in my view, preferred Francis' evidence.

20.  Had the point about Francis having exceeded his authority been raised in the pleadings, I believe questions, such as whether Jenny was aware (as she probably was), that a property agent would be involved, and in entering into a binding agreement a standard property agent's form would be used, would have been considered.  The court would also have to consider, whether, if an owner authorizes a friend to enter into a binding agreement on his/her behalf through the medium of a property agent, the authority of the agent would extend to the making of the agreement on terms commonly used by estate agents in Hong Kong.

21.  The case of Keen v Mear was considered by the English Court of Appeal in Wragg v Lovett [1948] 2 All ER 968.  In that case, the defendant authorised estate agents to sell his freehold dwellinghouse to the plaintiff for £840.  The agents made an agreement in writing as agents for the defendant for "the purchase to be made and completed according to the National Conditions of Sale (latest edition) … ", namely, not merely an open contract.  In an action by the purchaser for specific performance of this agreement it was only at a very late stage that the defendant raised the argument that inter alia that the agent had only authority to make an open contract.  The Court held that the proper inference from all the facts of the case was that the defendant was content to allow his agents to make whatever contract they thought best and relied on them to protect his interests.  Lord Greene said at page 970:

"… It may be perfectly true that the defendant had not seen the contract and was ignorant as to its terms, but this appears to us to be immaterial on the facts of this case.  If, as we think, he must be taken to have left it to his agents to make such a contract as they thought proper in his interests, the fact that he did not see the contract would be immaterial. …"

22.  In the present case, as found by the learned Judge, Jenny verbally authorised Francis to sell the Property in the New Year phone call.  There was nothing in the New Year phone call to limit the authority of Francis to sell the Property by means of an open contract (I wonder how well known is the concept of a sale by an open contract in Hong Kong).  It is not necessary for me to go into any detail but I note Article 26 in Bowstead & Reynolds on Agency (19 Ed.) at page 126:

"3-016 Where the authority of an agent is conferred in such ambiguous terms, or the instructions given to him are so uncertain, as to be fairly capable of more than one construction, an act reasonably done by him in good faith which is justified by any of those constructions is deemed to have been duly authorised, though the construction adopted and acted upon by him was not that intended by the principal.  But with modern communications it may be possible to obtain clarification, and an agent may not act reasonably if he does not do so."

23.  The learned judge proceeded on the basis that the burden was on Francis to show that he had authority to enter into the particular preliminary agreement containing those clauses.

24.  It is useful to note the following comment in Hong Kong Civil Procedure 2011, Vol. 1 para. 18/0/2 at page 365:

"The purpose of pleadings is to ensure that the real issues in dispute between the parties can be defined in advance of trial.  This is important throughout the entire litigation process. For instance, unless the issues are defined, one cannot decide what documents are relevant and thus have to be disclosed during the discoveries stage."

25.  The duty is on a defendant to plead specifically any matter:

"… which, if not specifically pleaded, might take the opposite party by surprise". Order 18 rule 8(1)(b).

26.  The notes at para. 18/8/2 explain:

"It is not enough for a party to deny an allegation in his opponent's pleading; he must go further and dispute its validity in law, or set up some affirmative case of his own in answer to it.  It will not serve his turn merely to traverse the allegation; he must confess and avoid it.  Thus, if the plaintiff sets up a contract which was in fact made, the defendant should not traverse (i.e. deny) the making of the contract: he should confess (i.e. admit) that he made the contract, but avoid the effect of that confession by pleading e.g. that the contract has been duly performed or rescinded."

27.  Applying that approach to the present case, if Jenny had wished to rely as a defence that in entering into the actual preliminary agreement, Francis had exceeded his authority, she would have to plead that as an alternative to her primary case that he had no authority to enter into any preliminary agreement at all.

28.  For the above reasons, we have allowed Francis' appeal and the Plaintiff's cross appeal, and ordered that in place of Francis, Conwell should make the necessary payments to the Plaintiff.  We also ordered that Conwell should pay the costs of the Plaintiff and of the 2^nd Defendant here and below.

Hon Kwan JA:

29.  I agree with the Reasons for Judgment of the Vice-President.

Hon Chu JA:

30.  I agree.