MOORJANI ARJAN RAMKRISHANDAS v. PATEL'S WALL STREET EXCHANGE LTD.

HCA 822/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 822 OF 1998

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J U D G M E N T

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1. This action arises out of the purchase by the Defendant of premises known as Flat D, 5th Floor, Majestic House, No. 80 Nathan Road from Madam Ma Siu Chun.

2. The Plaintiff had been tenant of those premises for more than 17 years before the Defendant purchased them. It is his case that the Defendant's purchase of the premises was pursuant to an agreement between him and the Defendant that he would vacate the premises and that they would be sold as soon as possible after the purchase and the proceeds distributed in accordance with their agreement. He alleges that the Defendant has reneged on that agreement and he therefore claims the profits that would have accrued to him had the agreement been performed.

The evidence for the Plaintiff

3. The Plaintiff's evidence was that as sitting tenant, he had been approached by the vendor in April 1994 and offered the property at $2.8 million, a price significantly lower than the market price. Negotiations with the solicitors for the vendor had dragged on until December 1994 when a price of $2.6 million was agreed.

4. In the meantime, the Plaintiff had been unsuccessfully trying to secure a loan from a bank to purchase the property. It appears that the age of the property was the obstacle to such a loan.

5. In December 1994, he approached Mr Mohamed Ameen ("Ameen"), the most senior person of the Defendant company at the Defendant's Hong Kong office. He did so because there had been an association dating back some years between his tailoring business and the Defendant company. For a period of 21/2 to 3 years starting in 1987, he had sublet part of his shop in Chung King Mansions to the Defendant company for its money changing business. The Defendant company subsequently moved out to larger premises but from 1994 onwards, the Plaintiff had regularly used the Defendant company to discount foreign currency cheques on his behalf. As a result he had become a personal friend of Mr A S Patel ("Patel"), the chairman of the company who by 1994 was spending most of his time in Bombay.

6. His proposal to Ameen was that the Defendant company lend him the money to purchase the property. Ameen had, however, insisted that the property be purchased in the name of the company but agreed that the property would be sold as soon as it had been redecorated. This was accepted by the Plaintiff. It was agreed that after the property had been sold, any profit realised would go to the Plaintiff after deduction of (i) decoration and other expenses; (ii) interest on the figure of $2.6 million from the date of purchase to the date of sale at 1% per month; (iii) a sum of $100,000.00 to be paid to Ameen; (iv) a sum of $200,000.00 to be paid to Patel. At this meeting which was on 15 December 1994, the Plaintiff was required by Ameen to sign a letter agreeing to surrender his tenancy of the premises.

7. Four days later on 19 December 1995, they had both gone to a lawyer's office. This had been followed by a meeting on 10 January 1995 at the solicitors' office when a Provisional Sale and Purchase Agreement setting a completion date for 2 March 1995 was signed by Ameen on behalf of the Defendant, and the Plaintiff signed an agreement to surrender the tenancy on 14 March 1995.

8. Pursuant to this agreement, the Plaintiff had engaged a decoration contractor trading as Mr Fix-It to perform certain works at the flat. What the Plaintiff alleges is an invoice in the sum of $70,000.00 dated 20 February 1995 for the part of the work that Mr Fix-It performed was produced in evidence. The Plaintiff also said that he signed a Sole Agency Agreement with L & D Associates on 8 March 1995 to market the property. That agreement was admitted in evidence.

9. The Plaintiff maintained that although the surrender agreement specified that he should move out by 14 March, the understanding was that he need not move out until the property was sold. Problems arose when workers instructed by Ameen to complete the works started by Mr Fix-It changed the locks on 17 or 18 March and the police were called. There was at least one further incident when the police were called after the Plaintiff attempted to retrieve his property from the premises.

10. The Plaintiff said he never resumed living in the premises. He gave evidence of an advertisement for the property which appeared in the South China Morning Post on 4 April 1995 giving Ameen's name and telephone number. The Plaintiff maintained he never received any money from the Defendant under the Oral Agreement.

11. The defence case is that there was an agreement between the Plaintiff and the Defendant company in relation to the purchase of the property but that its terms were quite different.

Evidence for the Defendant

12. The evidence for the defence came from Mr Patel, the Chairman and Mr Ameen, the General Manager for Defendant company and its most senior employee in Hong Kong at the material time. Since the evidence of Mr Patel was that he was not directly involved in any dealing with the Plaintiff in relation to the property, the case for the Defendant is dependent on the evidence of Mr Ameen.

13. Ameen's evidence was that the Defendant had incurred substantially indebtedness to the Defendant company due to cheques which he had presented for discounting being returned. The Defendant company had experienced considerable difficulties in even contacting the Plaintiff about this debt.

14. At a time when this debt was still subsisting, the Plaintiff had approached him for a loan to purchase the flat in question. Ameen said that he had that initially he had refused because making loans was not part of the Defendant's business.

15. The Plaintiff had approached him again. On this occasion, the Plaintiff had suggested that the Defendant purchase the property itself as his land lady was selling it for a price below the market price. The Plaintiff had said that whereas the land lady was asking $2.6 million, the property was worth $3.5 million. The Plaintiff suggested the Defendant could use the profit to offset his debt.

16. The Plaintiff said that he discussed the Plaintiff's proposal with one of his managers and having has ascertained that the property was worth $3.5 million, they agreed that this proposal was the best way of offsetting the Plaintiff's debt. He, therefore, agreed to the Plaintiff's proposal. Ameen said that he thought the flat could either be used for the company's staff or alternatively could be sold.

17. He had gone to the solicitors office to discuss his proposal and subsequently the Plaintiff had signed the Surrender Agreement and the Defendant company had purchased the property.

18. Ameen denied the agreement alleged by the Plaintiff. He denied that the Plaintiff had made any improvements to the property. He said that he had never seen the contract between the Plaintiff and the L & D Associates to market the property. He denied that he had inserted the advertisement in the South China Morning Post which he admitted gave his name and telephone number.

19. This case turns upon the court's assessment of the credibility of the witnesses.

20. Having heard the evidence of the Plaintiff on one hand and Ameen and Patel for the defence on the other, I had no hesitation in preferring the evidence of the Plaintiff. The Plaintiff's account was credible and supported by the document dated 20 February 1995 from Mr Fix-It and the Sole Agency Agreement dated 8 March 1995 signed by him with L & D Associates to market the property. There would have been no reason for him to have any contact with a decorating contractor or L & D Associates if the Defendant's explanation was true. I have no reason to disbelieve the Plaintiff's evidence that he had paid $70,000.00 to Mr Fix-It in respect of the redecoration of the flat. He gave credible explanations for apparently overlapping items of work referred to in the invoice of Trendwell Construction & Decoration Co. produced by the defence. The fact that the document from Mr Fix-It refers to the removal of old doors and door frames without referring to the supply of new ones and the document from Trendwell refers to replacements for the doors tends to support the evidence that Trendwell completed works started by Mr Fix-It.

21. Plaintiff frankly admitted that he had been indebted to the Defendant prior to this transaction. Even if he is incorrect when he says that he had presented an additional cheque for discounting which does not appear in the Defendant's account, there was no reason to suppose the cheques which he had presented for discounting before 15 December 1994 would not be honoured and cover his indebtedness.

22. His case that the purchase of the property by the Defendant had no connection with his indebtedness to the Defendant is supported by the admission of Ameen that even in December 1995 when he left the company, the records of the Plaintiff's account with the Defendant did not reflect that the sale of the property had been offset against the Plaintiff's debt.

23. On the other hand, I found both Ameen and Patel be unsatisfactory witnesses. Since Patel did not claim to have any direct dealings with the Plaintiff, it is the evidence of Ameen it is of particular significance to this case. There were numerous aspects of Ameen's evidence that suggested that he was not telling the truth. I find, for instance, his attempt to explain the advertisement which appeared in the South China Morning Post on 4 April 1995 bearing his name and telephone number unconvincing. That he was involved in the insertion of that advertisement is supported by the reply dated 21 April 1995 sent by Hoosenally & Neo, the solicitors he personally instructed on behalf of the Defendant. Messrs Drivers, the solicitors for the Plaintiff had expressly referred to the insertion of the newspaper advertisement in the press in their letter of 19 April 1995. I find that the letter of Hoosenally & Neo impliedly accepts that such advertisements had been inserted.

24. Equally unconvincing, bearing in mind his position within the company was his assertion that he never discussed the transaction with Patel between December 1994 and March 1995, especially if as Patel suggests, he was at a board meeting on 20 January 1995 when the purchase was ratified. I find implausible his explanation as to why the account of the Plaintiff's did not reflect by December 1995, the alleged set off of the Plaintiff's debt against the purchase of the property.

25. Bearing in mind his alleged "great pain and stress" caused by the indebtedness of the Plaintiff and his concern that it was his responsibility, I do not believe that he would have entered into this transaction to purchase the property for $2.6 million without the safeguard of a written valuation as to its market value which he could have shown to Patel if necessary.

26. His attempt to explain why he had said in his witness statement that he had been instructed by the Defendant to purchase a residential flat for use as staff quarters when he meant that it was a result of the discussion between him and a subordinate was just another example of his lack of frankness.

27. I find the Plaintiff has proved the existence of the agreement alleged.

Authority

28. The next question I must decide is whether Ameen had real or ostensible authority to bind the Defendant to such an agreement. I am satisfied that Ameen did have such authority. He was the senior official of the company and in overall charge of the Defendant's operations in Hong Kong. I accept his evidence that the memorandum and articles of the Defendant permitted it to purchase property. I accept his evidence that he had no need to discuss the purchase of a property with Patel or the board of directors and that he himself was authorised to purchase a property in the name of the company by virtue of his position. He gave that as the reason for having said in his witness statement that he had been instructed by the Defendant that the Defendant company wanted to purchase a residential flat. Even Patel had said in his witness statement that he had told Ameen that the Defendant company wished to purchase a residential flat.

29. It follows from my finding that he was authorised to purchase a property that he had authority by virtue of his position to enter into the agreement he did with the Plaintiff.

30. Even if I had not been so satisfied, I would have been satisfied the Defendant company had held him out as having apparent authority to enter into such agreement by virtue of this position within the company.

"Secret commission"

31. The next question for my consideration is whether the Plaintiff is precluded from enforcing the agreement by virtue of the suggestion that it involved secret commission (i.e. the agreement to pay $100,000.00 commission to Ameen and possibly the agreement to pay $200,000.00 commission to the company Chairman Patel).

32. It is not of course the defence case that there was any agreement to pay commission, secret or otherwise, to Ameen or Patel.

33. The matter arose from the evidence of the Plaintiff in this way.

34. During the course of cross-examination, the Plaintiff had said that he did not know if Ameen had authority to ask for commission but he pointed out that Ameen was the person in charge of the company.

35. At the conclusion of re-examination, he was asked about the discussions he had had with Patel during the meeting which both he and Patel admitted had taken place in Bombay in February. He said that he had told Patel about the agreement he had reached with Ameen and that he (Patel) would receive $200,000.00. He said that he had not mentioned the $100,000.00 commission that would be paid to Ameen because "Ameen was working for him so it would be embarrassing for Ameen if I mentioned that he was going to get $100,000.00".

36. It had been Patel's evidence that there had been no discussion of the property deal during that meeting but I prefer the evidence of the Plaintiff in this regard.

37. It follows from his evidence that the Plaintiff suspected that Ameen might not have authority to receive this commission.

38. The Defendant has not sought to rescind the agreement on this basis.

39. Does this evidence mean that the Plaintiff is precluded from enforcing the agreement? I am satisfied that it does not.

40. While there are circumstances in which courts will decline to enforce contracts tainted with illegality or otherwise arising "ex turpi causa", they will only do so in the light of all the circumstances including the nature and significance of the objectionable terms, the relative blame-worthiness of the parties and the consequences to the parties of enforcing or not enforcing the agreement. I am satisfied that the circumstances do not warrant such a sanction. I have borne in mind the following matters. Although the Plaintiff suspected that Ameen might not have authority to demand commission, there was no reliable evidence whether he had such authority in view of the lack of frankness of the defence witnesses. The demand for commission came not from the Plaintiff but from the Defendant's agent Ameen. To allow the Defendant to profit from the misconduct of its own agent in such circumstances would be unjust. It would result in the Plaintiff having given up the benefits of a protected tenancy and the gaining of a substantial windfall by the Defendant company. A commission is, in any case, collateral to the main purpose of the agreement which was in itself advantageous to the Defendant. If indeed this was an agreement for a secret commission the result of enforcing that agreement will be that Defendant will have the benefit of that commission rather than those who were not authorised to receive it.

41. I find therefore the Plaintiff is entitled to enforce the terms of the agreement.

42. Bearing in mind the fact that the property was advertised in the South China Morning Post in April 1995 for $4 million, I am satisfied that that was a realistic price. The Plaintiff expected the sale to have gone through within 3 to 4 months. I consider that 4 months is a reasonable period in the circumstances.

43. It had been agreed between the parties that the expenses of purchasing the property at $2.6 million would have totalled $72,100.00 comprising: (i) scale fees for the Sale and Purchase Agreement $2000.00; (ii) scale fees for the assignment $18,000.00; (iii) stamp duty on the Sale and Purchase Agreement $100.00; (iv) stamp duty for assignment $52,000.00.

44. It has also been agreed between the parties that the expenses of selling the property at a consideration of $4 million would be $14,600.00 comprising: (i) scale fees for Sale and Purchase Agreement $2,000.00; (ii) scale fees for the assignment $12,500.00; (iii) stamp duty on the Sale and Purchase Agreement $100.00.

45. The interest on $2.6 million at 1% per month over 4 months would amount to $104,000.00.

46. The total decorating expenses amounted to $176,350.00 comprising $70,000.00 which I find the Plaintiff paid to Mr Fix-It and the $106,350.00 which I am satisfied that the Defendant paid Trendwell Construction & Decoration Co. The Plaintiff is entitled to credit for the $70,000.00 he expended.

47. I find that the Plaintiff is entitled to the sum of $936,950.00 under the terms of the agreement with the Defendant. It is calculated as follows:

Proceeds of sale:			$4,000,000.00
less	(1)	price of purchase of the property	$2,600,000.00
	(2)	expenses of purchasing and selling the  property	$86,700.00
	(3)	decoration expenses	$106,350.00
	(4)	commission	$300,000.00
	(5)	estate agency fees	$40,000.00
sub-total			$866,950.00
plus credit to $70,000.00 for expenses paid to Mr Fix-It			$70,000.00
Total			$936,950.00 =========

48. I give judgment for the Plaintiff in the sum of $936,950.00 plus interest thereon at 8.5% from 2 July 1995 (i.e. 4 months after completion of purchase) until today and thereafter at judgment rate until payment.

49. I make the following order nisi as to costs unless either party applies to be heard on the question of costs within 14 days of today, the Plaintiff's costs be taxed and paid by the Defendant.