3530/2006

DCCJ 3530/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3530 OF 2006

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JUDGMENT

The Claim and the Defence

1.  This is a claim made by the Plaintiff for the sum of HK $235,000, being the commission payable to the Plaintiff as estate agent, and interest thereon.  The sum is claimed from the Defendant under a provisional agreement for sale and purchase dated 11 September 2003 (“Provisional Agreement”).

2.  The Plaintiff claims that an agreement was made between the Plaintiff as real estate agent , the Defendant as the vendor and a third party as the purchaser, whereby the Defendant agreed to sell Shop No. 1, Ground Floor, Pico Tower, 66 Gloucester Road, Hong Kong (“Property”) to the purchaser through the Plaintiff as agent.  It is the Plaintiff’s claim that under the agreement, in consideration of the services rendered by the Plaintiff, the Defendant agreed to pay commission of HK $235,000 to the Plaintiff not later than 15 November 2003.

3.  The relevant clauses of the Provisional Agreement are summarized below.  Clause 1 provides as follows:

"	The Vendor agrees to sell and the Purchaser agrees to purchase, through the Agent subject to the terms and conditions herein contained, all that Shop No. 1, on Ground Floor Pico Tower, No. 66, Clause Road, Hong Kong (hereinafter called "the said premises")."

4.  Clause 2 of the Provisional Agreement provides that the purchase price of the Property shall be HK $23.5 million which shall be paid by the purchaser to the Defendant as vendor, with an initial deposit to be paid upon signing of the agreement in the sum of HK $800,000;  upon signing of the formal agreement for sale and purchase on or before 24 September 2003 a further deposit shall be paid in the sum of HK $1,550,000; and the balance of the purchase price shall be paid upon completion on or before 15 November 2003 at the Defendant's solicitors in the sum of HK $21,150,000.

5.    Clause 9 of the Provisional Agreement provides as follows:

"	In consideration of the services rendered by the Agent, the Agent shall be entitled to receive HK $235,000 from the Vendor and HK $ nil from the Purchaser as commission.  Such commission shall be paid not later than 15 November 2003."

6.  Clause 10 of the Provisional Agreement is set out in full, below.

"	10 a.	If in any case the Vendor or the Purchaser fails to complete the sale or purchase in the manner herein contained, the defaulting party shall compensate at once the Agent HK $235,000 as agreed damages.
	10 b.	In the event that the Vendor and the Purchaser shall after the signing of this Agreement agreed to cancel the transaction under this Agreement without the prior written consent of the Agent, each of the Vendor and the Purchaser shall upon cancellation of the transaction forthwith be liable to pay the Agent the commission payable by them under clause 9 of this Agreement."

7.   The Defendant denies the making of the Provisional Agreement, and claims that the express understanding between the parties was that the Provisional Agreement would only take effect upon its signing by all three parties thereto and upon payment of the initial deposit by the purchaser to the Defendant; and that the Plaintiff is only entitled to the commission upon completion of the sale and purchase of the Property in accordance with the Provisional Agreement.

8.  The Defendant claims it never received a copy of the Provisional Agreement duly signed by the purported purchaser, nor the initial deposit of the purchase price for the Property pursuant to the Provisional Agreement.  The Defendant relies on the fact that the copy of the Provisional Agreement signed by all three parties does not bear the acknowledgment receipt by the Defendant as vendor of the initial deposit payable under the Provisional Agreement.  The Defendant further claims that completion of the sale and purchase of the Property under the Provisional Agreement did not take place, and hence the Defendant is not liable to pay the commission.

The facts in dispute

9.  The Defendant’s evidence is that its manager, Mr. Johnny Leung Chun Wang (“Mr. Leung”), was approached by an agent of the Plaintiff some time in late August / early September 2003 in relation to the Property.  Mr. Leung was informed by the agent that some of the Plaintiff’s clients were interested in purchasing the Property, and inquired with Mr. Leung as to whether the Defendant was interested in selling the Property.  There was then some discussion on the intended sale price of the Property, and Mr. Leung informed the agent that the Defendant would be interested in selling the Property at HK $25,000,000.  According to Mr. Leung, the agent informed him that he would look for the right purchaser and push through the sale.  A few days later, the agent called Mr. Leung and informed him that he had found a purchaser who offered to purchase the Property at HK $23.5 million.  Mr. Leung’s response was that he had to discuss this with his employer, since the price offered was lower than the Defendant’s intended sale price of HK $25,000,000.  According to Mr. Leung, the agent came to his office two or three days after the aforesaid telephone conversation, on 11 September 2003, without any prior appointment.  By that time, Mr. Leung already had his employer’s confirmation that the Property could be sold at HK $23.5 million.  When the agent was informed of this, he took out a blank and pre-printed form of a Provisional Agreement for Sale and Purchase, and filled in some information, including the name of the Defendant as vendor and the price of HK $23.5 million.  The agent asked Mr. Leung to arrange for the Defendant to sign the Provisional Agreement first, so that the agent could take the signed Provisional Agreement to the intended purchaser, to show the intended purchaser that the Defendant as vendor was committed to selling the Property at the price of HK $23.5 million. According to Mr. Leung, he arranged for his employer Mr. Hady to sign the Provisional Agreement.  Mr. Leung also kept a copy of the Provisional Agreement which was signed on behalf of the Defendant.  According to the evidence of Mr. Leung, the copy of the Provisional Agreement which he signed on 11 September 2003 did not stipulate the date for the completion of the sale and purchase, which date was left blank.

10.  Mr. Leung’s evidence is that he did not hear further from the agent until the following day, when the agent went up to the Defendant’s office again.  According to Mr. Leung, the agent informed him on 12 September 2003 that the purchaser who had agreed to buy the Property at the price of HK $23.5 million wished to purchase instead the shares in the Defendant.  Mr. Leung asked the agent the reason for the purchaser’s change of mind, and the agent informed Mr. Leung that the purchaser wished to save on the stamp duty payable on the transaction by purchasing shares in the Defendant instead of purchasing the Property.  Mr. Leung discussed this with Mr. Hady, who agreed to the sale of shares, and then informed the agent that the Defendant would be agreeable to selling the shares in the company as opposed to selling the Property, on condition that the purchaser would have to proceed with the acquisition of the shares on the same terms as those contained in the Provisional Agreement for the sale and purchase of the Property.  According to Mr. Leung’s evidence, he was not given the copy of the Provisional Agreement which had allegedly been signed by the intended purchaser, nor was he given any cheque for the initial deposit of the purchase price under the Provisional Agreement.  He faxed  a copy of the Provisional Agreement which the Defendant had signed to the Defendant’s solicitors on 13 September 2003.

11.    The Defendant does not dispute that on 16 September 2003, its solicitors received from Augustine C. Y. Tong and Co. a letter advising the Defendant’s solicitors that its client, Mrs. Wei, offered on a subject to contract basis to purchase the entire issued shares of the Defendant at the price of HK $23.5 million.  A cheque for HK $800,000 was sent with the letter as “earnest money” for the purpose.

12.  Mr. Leung’s evidence is disputed by the Plaintiff. According to the Plaintiff’s evidence, the Plaintiff’s senior property consultant, Anthony Tam Ping Kee (“Tam”), went up to the Defendant’s office on or about 11 September 2003 and arranged for the Provisional Agreement to be signed first by the Defendant as vendor, and later by Mrs. Wei as purchaser.  According  to Tam, after Mrs. Wei had signed the Provisional Agreement, she issued a cheque in the sum of HK $800,000 in favor of the Defendant to represent the initial deposit payable under the Provisional Agreement, and Tam passed the cheque to the Defendant.  However, Tam’s evidence is totally unclear in relation to how and when he had allegedly passed the cheque to the Defendant.

13.  In Tam’s first Statement filed in these proceedings on 30 January 2007, he simply claimed that he had “passed the cheque on to the Defendant” without any specific details.  Tam also claimed in his first Statement that "shortly after" the Provisional Agreement had been signed by the parties, Mr. Leung telephoned him and inquired about selling the shares in the Defendant rather than the Property, and he told Mr. Leung to consult his own lawyers.

14.  In his Supplementary Statement filed just three days before the first day of trial, Tam claimed that after the Provisional Agreement had been signed by the Defendant on or about 11 September 2003,he had signed the Provisional Agreement on behalf of the Plaintiff, and had then brought the said agreement to the intended purchaser, Mrs. Wei, to sign.  Mrs. Wei gave Tam a cheque for HK $800,000, and “immediately afterwards and in accordance with (his) usual practice and the general practice required by the Plaintiff”, Tam had telephoned Mr. Leung and notified him that the purchaser had agreed to the price of HK $23.5 million and that the Provisional Agreement had been signed by the purchaser and by the Plaintiff.  He was “absolutely certain” that he had thus called Mr. Leung, and that he had also called Mr. Leung to arrange for the delivery of the cheque and the Defendant’s copy of the Provisional Agreement to the Defendant.  Tam could not explain why the Defendant had not acknowledged receipt of the cheque for HK $800,000 but stated in his Supplemental Statement that this "may be" because before he had the opportunity to deliver the cheque to the Defendant, Mr. Leung had indicated to him that the Defendant and the purchaser were discussing the purchase of shares in the Defendant instead of the purchase of the Property, and Mr. Leung "may" have requested Tam to return the cheque to Mrs. Wei or her solicitors, which he "may" have done.  Tam recalled in his Supplemental Statement that both Mrs. Wei and Mr. Leung had consulted him on the sale of shares in the Defendant.

15.  Tam’s testimony in court differed from the evidence contained in his earlier Statements.  Although his oral testimony took place just three days after he made his Supplemental Statement, Tam could no longer recall whether he had taken the signed copy of the Provisional Agreement and the cheque for HK $800,000 to the Defendant at its office or to the office of the Defendant’s solicitors.  He was not certain, but thought that this “should have” taken place on the same day as the Provisional Agreement was signed on 11 September 2003, or at the latest, the following day.  When he was cross- examined further, his evidence was that he had taken the signed copy of the Provisional Agreement and the cheque to the Defendant at its office, but Mr. Leung told him then that as there was a proposal for the sale of shares in the Defendant instead of a sale of the Property and the parties were discussing this, Mr. Leung would not accept the cheque for the initial deposit, and asked him to return the cheque to the purchaser.  This of course contradicted the evidence contained in his first Statement that Mr. Leung had informed Tam that the sale of shares was being discussed between the parties before Tam had the opportunity to deliver the cheque to Mr. Leung.

16.  Tam maintained in his oral testimony in court that the proposal to sell the shares in the Defendant was first mentioned to him by Mr. Leung, although it is not clear  from his evidence whether this was raised during Mr. Leung’s purported telephone call to Tam, or during the time when Tam had delivered the signed copy of the Provisional Agreement and the cheque to the Defendant’s office.  Tam’s evidence that the proposal to sell shares was made by Mr. Leung is not credible for various reasons.  Tam had insisted that before the intended purchaser had signed the Provisional Agreement, he had not disclosed the name or the details of the purchaser to the Defendant.  Before Tam had the opportunity to give a copy of the signed Provisional Agreement to Mr. Leung with the name and particulars of the purchaser completed, it was not possible for Mr. Leung to have contacted the purchaser before the meeting with Tam to discuss the sale of shares with the purchaser, so he could not have told Tam that was the reason why he was not accepting the cheque.  The Defendant also pointed out that the Defendant had no incentive to raise with the purchaser the possibility of selling the shares instead of the Property, as any benefit of saving stamp duty would go to the purchaser and not the vendor.

17.  Tam’s oral testimony on why Mr. Leung had raised the proposal to sell the shares in the Defendant as opposed to the sale of the Property also adopted a changing course.  He first claimed in his Supplemental Statement that Mr. Leung had only sought his opinion on the sale of shares, and he had explained that as the Plaintiff was not familiar with the sale and purchase of companies, Mr. Leung should seek legal advice.  In his oral evidence, he claimed that when Mr. Leung telephoned him, he "conveyed a message” to Tam that the Defendant was negotiating the sale of shares to the purchaser, and his recollection was that the proposal was made to save on stamp duty.  Tam then said that he thought that the Defendant wanted to extend a favor to the purchaser by making the proposal.  When questioned further, however, Tam’s evidence became that when Mr. Leung telephoned him to suggest the sale of shares, Mr. Leung had mentioned that the Defendant would extend a favor to the purchaser by proposing a sale of shares so that the purchaser could save on stamp duty.  On being pressed for a reason for the Defendant to offer such a favor, Tam then changed his evidence again to say that he was only given such “a signal” or an understanding only, and that Mr. Leung had not expressly mentioned the favor.

18.  Tam’s evidence in relation to how and when he had passed the signed copy of the Provisional Agreement to Mr. Leung, why the receipt for the cheque was not signed by the Defendant, how the proposal to sell shares in the Defendant was first raised, and how he had learned of the proposal has shifted to such an extent, from the version originally contained in his first Statement in January 2007, to the version contained in his Supplemental Statement on 6 August 2007, to the different, changing versions in his oral testimony on 9 August 2007, that this aspect of the Plaintiff’s evidence has become totally unsafe and unreliable.  Tam simply had no recollection at all of the events in September 2003, and tended to make up and embellish his evidence along the way.  I prefer and have accepted the Defendant’s evidence and version of events as set out in paragraphs 9 to 11 above.

The Alleged Cancellation of the Agreement

19.  It is not disputed that by 16 September 2003, Mrs. Wei, the purchaser named in the Provisional Agreement, had through her solicitors proposed to the Defendant to purchase the shares of the Defendant at the same price of HK $23.5 million as that mentioned in the Provisional Agreement.  A cheque for HK $800,000 was sent by Mrs. Wei’s solicitors to the Defendant’s solicitors as “earnest money” for the sale of shares.  The Plaintiff was of course aware of and in part facilitated this, and it made no objection to this development in the course of events.  Negotiations followed between the parties’ solicitors in relation to the detailed terms and conditions of the sale and purchase of the shares in the Defendant.  Drafts of agreements for the transaction were exchanged, but the parties failed to agree on the warranties to be given by the vendor of the shares to be sold and on other detailed terms and conditions of the agreement for the sale and purchase of shares.

20.  On 24 September 2003, the purchaser’s solicitors, Messrs. Augustine C. Y. Tong & Co., wrote to the Defendant’s solicitors, to say :

“	We are instructed to confirm that the purported draft Provisional Agreement for Sale and Purchase dated 11 September 2003 has been treated by our respective clients and the estate agent as cancelled, void and of no legal effect.”

On the same day, the Defendant’s solicitors wrote to the purchaser’s solicitors to say that the Defendant had decided not to proceed with the sale and purchase of shares, and returned the earnest money received in relation to the shares transaction. 

21.  Against the background of facts set out in paragraphs 19 and 20 above, the Plaintiff claims, pursuant to clause 10b of the Provisional Agreement, that the Defendant and the purchaser had agreed to cancel the transaction under the Provisional Agreement without the prior written consent of the Plaintiff, such that the Defendant is liable to pay to the Plaintiff the commission payable under the Provisional Agreement.

Whether Agreement has come into effect

22.  By way of defence, the Defendant claims that notwithstanding the express provisions of the Provisional Agreement, there was an “express understanding” between the Plaintiff and the Defendant that the Provisional Agreement would only take effect: (1) upon the signing thereof by all the three stated parties to the agreement, and the payment of the initial deposit by the purchaser (“the first alleged condition”); and (2) upon the completion of the sale and purchase of the Property, and otherwise, clause 10a of the Provisional Agreement applies (“the second alleged condition”).  Clause 10a provides that if the vendor or the purchaser fails to complete the sale or purchase, the defaulting party will compensate the commission to the Plaintiff as agreed damages.

23.  In relation to the first alleged condition, the three parties to the Provisional Agreement had signed the said Agreement, although at different times.  The initial deposit of HK $800,000 stipulated to be payable under Clause 2(a) of the Provisional Agreement had also been paid by the purchaser.  Mr. Leung only claimed that he never received a signed copy of the Provisional Agreement nor the cheque representing the initial deposit when Tam came to his office on 12 September 2003.

24.  Mr. Leung was questioned as to the role of the Plaintiff or Tam when the Defendant agreed to sign the Provisional Agreement for the sale of the Property at the price of HK $ 23.5 million, and what the Plaintiff was authorized to do.  His answer was that the Plaintiff was acting as a middleman introducing an interested purchaser to the Defendant as vendor.  Mr. Leung's evidence was that the Plaintiff's role was "to achieve the sale and purchase of the Property on fair principles".  He had expected the Plaintiff to make arrangements with the intended purchaser to sign the agreement for sale and purchase and to pay the initial deposit at the offices of the Defendant's solicitors, and accepted that the Plaintiff had his authority to act in these respects.  However, he admitted that he had not informed the Plaintiff or Tam of the requirement that the signing and the payment of the deposit had to be at the offices of the Defendant’s solicitors.  He considered that it was not necessary to do so.

25.  In the light of Mr. Leung's evidence, I cannot accept that he had limited the authority of the Plaintiff so far as the arrangements for the signing of the Provisional Agreement and the payment of the deposit are concerned.  From his evidence, Mr. Leung appears to be an experienced and sophisticated businessman familiar with property transactions in Hong Kong.  Considering the express provisions of clauses 1, 9 and 10 of the Provisional Agreement, Mr. Leung must have been aware and understood that by signing the Provisional Agreement, the Defendant was appointing the Plaintiff as its agent to proceed with the sale of the Property at the price of HK $23.5 million.  Without expressly stipulating that the Provisional Agreement was only to be signed by the purchaser at the offices of the Defendant's solicitors where payment of the initial deposit was to be made, it is within the usual authority of an estate agent in Hong Kong, acting as "middleman" in the manner Mr. Leung described, to contact the purchaser and to arrange for the purchaser to sign the Provisional Agreement on the terms set out in the Provisional Agreement which the Defendant had signed, and to accept the payment of the initial deposit expressed in clause 2 of the Provisional Agreement to be payable "upon signing of this agreement".  When the Provisional Agreement was signed by the Plaintiff and the purchaser after the Defendant's signing, and the cheque for the sum of HK $800,000 was issued by the purchaser and given to Tam as agent for the Defendant, the first alleged condition was fulfilled.

26.  The second alleged condition is that the Plaintiff is only entitled to payment of the commission upon completion of the sale and purchase of the Property in accordance with the Provisional Agreement, and otherwise clause 10a is to apply such that the party in default is to pay the commission to the Plaintiff.  This contention contradicts the express provisions of clause 10 of the Provisional Agreement.  Clause 10 makes a distinction between the liability of the party in default who failed to complete the sale or purchase of the Property to pay the agreed commission to the Plaintiff as agreed damages, and the liability of the vendor and the purchaser to pay the commission respectively payable by them in the event of their agreeing to cancel the transaction under the Provisional Agreement.  On the facts of this case, clause 9 makes it clear that no commission was payable by the purchaser to the Plaintiff under the Provisional Agreement.  The second alleged condition seeks to exclude the operation of clause 10 b.  Evidence cannot be admitted to add to, vary, or contradict the express written terms of an agreement.  In any event, and despite the pleading of the second alleged condition in the Defence, I have not seen any evidence from the Defendant as to how this second  alleged condition was raised by Mr. Leung, or agreed to by the Plaintiff.

Whether valid Agreement

27.   The Defendant also sought to argue that the Provisional Agreement is void as it is not supported by consideration, when the initial deposit was not received by the Defendant. I reject this argument. The Defendant’s agreement to sell the Property and to pay commission to the Plaintiff was clearly supported by valid consideration in the form of the purchaser’s agreement to buy the Property through the Plaintiff, and the Plaintiff’s agreement to render its services as estate agent to the Plaintiff.  Even though the Defendant claims it never received the cheque from the Plaintiff, this does not assist the consideration argument.  Moreover, the evidence from the Plaintiff is that the purchaser had indeed issued the check and given it to Tam acting as the estate agent of the Defendant in the transaction.

Whether there was cancellation of Agreement

28.  To succeed in its claim, the Plaintiff must establish that the Defendant as vendor and the purchaser had agreed to cancel the transaction under the Provisional Agreement, so as to entitle the Plaintiff to payment of the agreed commission of HK $235,000 from the Defendant under clause 10b.

29.  On Mr. Leung's evidence, he was informed when Tam came to the Defendant's office on about 12 September 2003 that Mrs. Wei, the purchaser, proposed to purchase the shares in the Defendant instead of purchasing the Property.  After consulting Mr. Hady, Mr. Leung agreed to the proposal and the solicitors for the Defendant and the purchaser proceeded to negotiate the terms and conditions of the agreement for the sale and purchase of shares in the Defendant.  It is clear from the evidence that from 12 September 2003 until 24 September 2003, the Plaintiff, the Defendant and the purchaser had all agreed to the variation of the Provisional Agreement by proceeding with the sale and purchase of the Property through the sale and purchase of shares in the Defendant which holds the Property.  The Plaintiff was obviously happy for the Defendant and the purchaser to proceed with the sale and purchase of shares so long as its entitlement to the commission was not affected.  On Mr. Leung's evidence, the Defendant had no objection to proceeding with the purchaser’s proposal to purchase the company, on the condition that the purchaser should adhere to the other terms and conditions set out in the Provisional Agreement.   The Plaintiff does not rely on the circumstances under which the Defendant and the purchaser decided to change the sale and purchase of the Property to a sale and purchase of shares in the Defendant (which took place between 12 and 16 September 2003) as an agreement to cancel the Provisional Agreement.  Counsel for the Plaintiff accepts that when the parties agreed to proceed with the sale and purchase of the shares as opposed to the Property, there was a variation of the Provisional Agreement as opposed to a cancellation thereof.  It is clear from Mr. Leung's evidence that the Defendant had indicated at different times to the purchaser and to the Plaintiff that it was proceeding with the sale and purchase of the shares on the basis that the terms set out in the Provisional Agreement should continue to apply: and in particular, the price, the dates for the payment of the deposits and the date for completion of the transaction.

30.  The dispute relates to the circumstances of the termination or purported cancellation of the agreement for the sale and purchase of shares in the Defendant on about 24 September 2003.  By then, the solicitors for the purchaser had proposed to include in the agreement for acquisition of shares the usual requirement for transactions of this nature that the vendor of the shares should give warranties as to the accounts and financial affairs of the company.  The Defendant did not find this acceptable.  Mr. Leung's evidence is that he had personally telephoned the purchaser's solicitor to explain that the Defendant was not agreeable to the amendments which the purchaser's solicitors had made to the draft agreement for the sale and purchase of shares.  According to Mr. Leung, he requested the purchaser's solicitors to proceed with the transaction in accordance with the date for completion of the sale and purchase and the dates for payment of the deposits as stipulated in the Provisional Agreement, instead of insisting upon the warranties or indemnities contained in the draft agreement for the sale and purchase of shares.  However, the purchaser's solicitor claimed during this conversation with Mr. Leung that the Provisional Agreement had been cancelled and was void.  Augustine C. Y. Tong & Co then sent to the Defendant's solicitors the letter dated 24 September 2003 referred to in paragraph 20 above, which is relied upon by the Plaintiff as evidence of the parties' agreement to cancel the Provisional Agreement.  The letter purports to confirm that the Provisional Agreement was treated by the Plaintiff, the Defendant and the purchaser as "cancelled, void and of no legal effect".  On receipt of this letter, Mr. Leung instructed the Defendant's solicitors to issue its letter dated 24 September 2003, to inform the purchaser's solicitors that the Defendant would not proceed with the sale of shares since the purchaser had cancelled the Provisional Agreement and would not purchase the Property under the Provisional Agreement.  He instructed the Defendant’s solicitors to return to the Plaintiff’s solicitors the "earnest money" which had been paid by the purchaser for the proposal to buy the shares.

31.  The Plaintiff on its part claimed that, notwithstanding the statement made in Augustine C. Y. Tong & Co’s letter of 24 September 2003, the Plaintiff had never agreed to treat the Provisional Agreement as having been cancelled, void and of no legal effect.  Counsel for the Plaintiff submitted that the court should look at the matter objectively to decide whether the parties had agreed to cancel the Provisional Agreement, instead of accepting the letter from Augustine C. Y. Tong & Co. on its face.  I certainly accept this submission, as no evidence has been adduced as to the basis on which Augustine C. Y. Tong & Co. claimed in its letter that the Provisional Agreement had been treated by all parties as cancelled, void and of no legal effect, and both the Plaintiff and the Defendant have denied that they had agreed to the cancellation.

32.  Mr. Leung's evidence is that he had never asked for the cancellation of the Provisional Agreement.  Nor did he ever agree to a cancellation, and on his evidence, it was the purchaser who had refused to proceed with the sale and purchase of the Property under the Provisional Agreement when the parties could not agree on the terms for the sale of the shares in the company.  Mr. Leung's evidence was that it was not up to him to agree to the purchaser's stated stance that the Provisional Agreement was cancelled, void and of no legal effect.  He claimed that he had no alternative but to accept the purchaser's refusal to proceed with the transaction under the Provisional Agreement. 

33.  Counsel for the Plaintiff argued that the Defendant's agreement to the cancellation of the Provisional Agreement is evidenced or supported by the fact that the Defendant returned the "earnest money" to the purchaser, and did not take legal action against the purchaser in respect of its failure to complete the purchase.  On the question of the return of the earnest money, Mr. Leung's evidence is that this was returned because it had been paid by the purchaser as earnest money when she made the proposal to buy the shares in the Defendant.  Since the purchaser would not proceed with the sale and purchase of the shares on the Defendant's terms, the Defendant returned the earnest money.  Mr. Leung claimed that the Defendant had never agreed to cancel the Provisional Agreement, but had no choice but to accept the purchaser's refusal to complete.  In further support of Mr. Leung's claim that the Defendant regarded the purchaser to be the party in default by failing to proceed under the Provisional Agreement, there is Mr. Leung's evidence that when the Defendant received the Plaintiff’s written demand for the commission payable under the Provisional Agreement upon its alleged cancellation under clause 10b, he had sent to the Plaintiff in response a copy of the letter dated 24 September 2003 from the purchaser's solicitors and asked the Plaintiff to seriously consider the proper party which should be responsible for its lost commission.

34.  The position of the Defendant as described by Mr. Leung is tantamount to that of a party accepting the repudiatory breach of contract on the part of another party to the contract, and treating itself as having been discharged from further performance under the contract.  I do not regard the parties in such a situation to have agreed to cancel the contract.  I draw some analogy to the distinction made by Chu, J (in Win Joyce Investment Ltd. v. Liu Kam Cheong, HCA  287/ 2004, 16 December 2004) between rescission of contract (not directly applicable here) and discharge of contract by acceptance of repudiatory breach.

35.   Nor do I take the Defendant's forbearance to commence proceedings or to take action in relation to what it regarded as the purchaser's breach as evidence of its agreement to cancel the Provisional Agreement.  On the evidence, the Defendant received a higher offer for the purchase of the Property which was eventually sold at the higher price some time after the transaction contemplated under the Provisional Agreement fell through, so there was no commercial reason for the Defendant to start legal proceedings against the purchaser. 

36.  Counsel for the Plaintiff submitted that it is not open to the Defendant to argue or to seek to establish that it was the purchaser who was in breach of the Provisional Agreement in refusing to complete the transaction contemplated thereunder, as the Defendant did not plead in its Defence that the purchaser was the party in default and who had failed to complete the purchase.  However, the Statement of Claim pleads that the Defendant is in breach of the Provisional Agreement in failing to pay the commission due to the Plaintiff.  The onus is therefore on the Plaintiff to show that the Defendant is in breach of clause 10b and that the Plaintiff is entitled thereunder to the payment of commission from the Defendant.  To establish that the Defendant is in breach of clause 10b, the Plaintiff  has the burden to prove that the Defendant had agreed to cancel the transaction under the Provisional Agreement. 

37.  Clause 10 provides for two different situations for the Plaintiff as agent to recover its commission when the parties do not proceed to complete the sale and purchase transaction contemplated under the Provisional Agreement.  Clause 10a provides for the case of either the vendor or the purchaser being in default and failing to complete the transaction, when the Plaintiff as agent is entitled to look to the party in default for its compensation in the form of the commission lost.  Clause 10b provides for the Plaintiff as agent looking to both the vendor and the purchaser for their respective share of the commission agreed to be payable to the Plaintiff, in the event that the vendor and the purchaser "agree to cancel the transaction".  The important distinction between clause 10a and 10b is that under clause 10b, there must be mutual agreement between the vendor and the purchaser to cancel the transaction.  Further, the mutual agreement must be to "cancel" the transaction.  "Cancel" by its ordinary meaning conveys a treatment of the matter being cancelled as being null and void ab initio.  In fact, the Shorter Oxford English Dictionary defines "cancel" to mean "render void".  This "cancellation" and rendering void ab initio is different to the common law right to terminate a contract by acceptance of repudiation, which discharges or puts an end to the remaining unperformed contractual obligations of the parties.  I repeat my observations under paragraph 34 above.

38.    On the evidence produced, I am certainly not satisfied that the letter dated 24 September 2003 from Augustine C. Y. Tong & Co. is conclusive evidence of the agreement on the part of the Defendant to the cancellation of the Provisional Agreement.  In the light of Mr. Leung's evidence, I am not satisfied, on a balance of probabilities, that the Defendant had “agreed” with the purchaser “to cancel” the Provisional Agreement when the purchaser refused to proceed with either the purchase of the shares on the Defendant's terms, or the purchase of the Property.

Orders

39.  Since the Plaintiff has failed to discharge its burden of proving the Defendant's liability under the Provisional Agreement to pay the commission claimed, I will dismiss the Plaintiff's claims against the Defendant, with an order nisi that the costs of the action be borne by the Plaintiff, to be taxed if not agreed. The order nisi will be made absolute should the parties fail to apply to be heard on costs within 14 days.