LIU JUN v. CHINA WELL PROPERTIES LTD

DCCJ 2759/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2759 OF 2011

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JUDGMENT
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Introduction

1.  Godfrey J (as he then was) in Cheng Kwok Fai v Mok Yiu Wah Peter [1990] 2 HKLR 440 categorized estate agents in Hong Kong as brokers, usually, but not always, taking commission from both vendors and purchasers. At times, the interest of the estate agent might conflict with that of his client. The result can be catastrophic. This case is one of the kind.

Plaintiff's case

2.  The plaintiff's case is simple.

3.  In early April 2011, she approached Miss Poon Yee Ping ("Poon"), who was an estate agent in the employ of Centaline Property Agency Ltd ("the third party") because she wanted to purchase a flat in The Harbourside, a housing estate located at No. 1 Austin Road West, Kowloon.

4.  In late April 2011, Poon recommended to her Flat E, 13th Floor, Tower 2, The Harbourside ("the property") which was up for sale at the price of $16,000,000 subject to an existing tenancy.

5.  In the evening of 3 May 2011, she signed a preliminary agreement for sale and purchase ("the agreement") for the purchase of the property and gave a cashier order payable to the solicitors of the defendant for the sum of $500,000 being the initial deposit to Poon. Later on the same night, Poon told her that the defendant had signed the agreement and acknowledged receipt of the cashier order.

6.  On 4 May 2011, Poon told her that because one of the directors of the defendant did not agree to sell the property so the transaction had to be called off.

7.  Pursuant to clause 9 of the agreement, the plaintiff said she     was entitled to be compensated by a sum equivalent to the amount of the initial deposit, ie $500,000.

Defendant's case

8.  The defendant purchased the property in August 2010 as first hand buyer. After the purchase, the defendant put the property up for sale at the price of $17,000,000.

9.  In the evening on 3 May 2011, Mr Chan Chi Wa Ricky ("Chan") and Miss Loi Siu Kiu ("Loi") of the third party presented Miss Lau Chui Fai ("Lau CF"), one of the directors of the defendant, with the agreement which was already signed by the plaintiff. Initially, Lau CF intimated that she would not sign on the agreement without the consensus of Miss Lai Viona ("Lai"), the other shareholder and director of the defendant. Chan however assured Lau CF that even she signed on the agreement, the agreement would not form a binding agreement until it was duly approved and signed by Lai, stamped with the company chop and delivered to the plaintiff upon the defendant's instructions. Persuaded by Chan's assurance, Lau CF signed on the agreement without receiving the initial deposit thereunder.

10.  On 4 May 2011, Loi, without the authority of the defendant, appended the company chop of the defendant on the agreement and refused to return the agreement to Lau CF.

11.  On 5 May 2011, contrary to the instructions of Lau CF, the third party released the agreement to the plaintiff. 

Third party's case

12.  The third party's case is that before Lau CF signed on the agreement, she informed Loi that Lai was aware of the sale and agreed to it.  After the signing, Loi delivered the vendor's copy of the agreement and the cheque representing the initial deposit to Lau CF. Lau CF passed them to Mr Lau Tung Tung Raymond ("Lau TT"), who was also present at the time.

13.  In the morning of 4 May 2011, Poon discovered that the company chop of the defendant was not appended on the agreement. Lau CF agreed to meet Chan later that day for the purpose of appending the company chop on the agreement. 

14.  Around noon on 4 May 2011, in the presence of Chan and Lau TT, Lau CF passed the company chop to Loi, who stamped the chop on the agreement and its carbon copies. Loi handed the vendor's copy to Lau CF, who passed it to Lau TT and asked him to send it to the defendant's solicitors.

15.  At all material times, Lau CF never mentioned that she needed to seek the consent of Lai, she never gave instructions to the third party that the agreement should only be released to the plaintiff upon instructions from her.

16.  One hour later on that day, Lau CF phoned Chan informing him that there was a disagreement between her and Lai which she would resolve. She requested Chan not to release the purchaser's copy of the agreement to the plaintiff. Chan told her that the plaintiff was entitled to have the purchaser's copy of the agreement and tuned down the request.

17.  In the evening of 4 May 2011, Lau CF requested Chan to destroy the agreement. Chan refused. She then left the cheque (representing the initial deposit) to Chan.

18.  The third party said that it was the defendant who failed to complete the sale and purchase. Pursuant to clause 12 of the agreement, the defendant should compensate the third party a sum of $310,000 as liquidated damage.

Issues

19.  The following issues are for the determination by this trial :

(1) whether the agreement is binding on the defendant;

(2) whether the defendant was in breach of the agreement;

(3) whether the defendant was liable to compensate the plaintiff the sum of $500,000 pursuant to clause 9 of the agreement;

(4) if the defendant is liable to compensate the plaintiff, whether the third party was in breach of its duty as agent of the defendant;

(5) if so, whether the third party is liable to indemnify the defendant; and

(6) whether the defendant is liable to compensate the third party the sum of $310,000 pursuant to clause 12 of the agreement.

Whether the agreement is binding on the defendant?

20.  The agreement was first signed by the plaintiff as the purchaser whereupon she delivered a cashier order for the sum of $500,000 payable to Messrs Lau, Chan & Ko, Solicitors (劉陳高律師事務所) being the initial deposit to Poon as her agent.

21.  The signature of the vendor on the agreement was that of Lau CF's. By the opening and closing submissions of Mr Arthur Lee, counsel for the plaintiff, the plaintiff relied on the indoor management rule (the rule in Turquand's case) and submitted that the defendant should be bound by the agreement.

22.  Whether the plaintiff can rely on the Turquand rule requires examination.

23.  In the statement of claim, the plaintiff did not plead the factual matrix upon which she was relying on the indoor management rule in order to establish liability. Even when it was pleaded by the defendant in the amended defence and counterclaim that the agreement was delivered to plaintiff without the consensus of Lai and the authority of Lau CF, and counterclaimed for a declaration that the agreement was null and void, the plaintiff still did not plead the factual basis upon which the Turquand rule was to be invoked in her amended reply and defence to counterclaim.

24.  Mortimer, VP in Pacific Foundation Finance Ltd v Fairyoung Holdings Ltd [1999] 3 HKLRD 153 at p157F-G held that Rolled Steel Ltd v British Steel Corpn (1986)  Ch 246 is the authority for the proposition that if a party seeks to rely upon the Turquand Rule, it must normally be pleaded. The rule is one of mixed law and fact.

25.  Lam J (as he then was) in Yip Lai Fong v Sin Tung Hng [2004] 3 HKC 153 elaborated the rule in details. In that case, the 1st petitioner and the 1st respondent were the only shareholders and directors of the 2nd respondent. The 1st respondent purported to act on behalf of the 2nd respondent in entering into an agreement selling the 2nd respondent's shares in the 3rd respondent to the 4th respondent. The petitioners sought to challenge the validity of the said agreement on the ground that it was entered without the prior knowledge nor authorization by them. His Lordship held at p159E that upon the averment by the 1st petitioner that the sale was without proper authority from the 2nd respondent, it is then up to the 4th respondent to raise a plea based on the Turquand rule. Only when the plea is raised, the 1st petitioner would need to rebut the plea by averring actual or constructive knowledge on the part of the 4th respondent. At p159G, His Lordship elaborated that to raise the plea, the respondents should set out the factual matrix relied upon by them to argue how the 2nd respondent had held out to the 4th respondent that the 1st respondent had apparent authority to enter into the sale agreement. Once the plea is raised, the party challenging the transaction would have the options of either arguing that the matters relied upon by the contractor are insufficient to trigger the Turquand rule, or he may adduce evidence to demonstrate that the rule is displaced by knowledge on the part of the contractor: see p160H of the judgment. His Lordship noted in passing that if the mere fact relied upon by the 4th respondent was that the 1st respondent was the director of the 2nd respondent, it is arguable that it would not be sufficient to trigger the rule: see p160I of the judgment.

26.  His Lordship's dicta therefore demonstrated the legal significance of raising a plea of the Turquand rule before the issue can be explored both factually and legally at the trial. His Lordship held that it was not sufficient for counsel for the 4th respondent to raise the plea by way of his skeleton submission at the striking out application: see pp159B, 159H of the judgment.  

27.  Coming back to the present case, the plaintiff did not plead the factual basis upon which to argue that Lau CF had held out to her that she had the apparent authority to enter into the agreement. The defendant is therefore not put to the option of how to meet with the plaintiff's plea. As a matter of fact, no such plea was raised at the pleadings stage. That being the case, it is not possible to deal with the issue judiciously both on its factual and legal aspects. It is not sufficient for Mr Lee to raise the plea at the submission stage.

28.  On the strength of the authorities of Pacific Foundation Finance Ltd (supra) and Yip Lai Fong (supra), I hold that the plaintiff is not entitled to rely on the Turquand rule in order to establish liability of the defendant.

29.  There remains the question of whether the agreement was binding on the defendant. The key question is whether the agreement was validly executed by the defendant.

30.  It is convenient here to deal with the evidence in this respect.

31.  According to Lau CF’s evidence, Lau TT was the estate agent she knew when the property was purchased in August 2010. Lau TT suggested to her to put the property up for sale at the price of $17,000,000 through Chan, who was working for the third party at the time.

32.  On 2 May 2011, Lau TT asked if she would be prepared to sell the property at $16,000,000. She did not give a positive reply. On the same day, Chan told her that a buyer was offering $16,000,000 but he asked for commission at 1.5% to which she agreed.

33.  On 3 May 2011 around 5.00 pm, Lau TT requested to see her so as to sign a preliminary agreement for sale and purchase. As she had a dinner appointment that night, she turned down the request and said would see him at her office the next day. When asked by Lau TT, she told him the restaurant at which she would have dinner that night.

34.  At about 7.30 pm on the same day, Lau TT, Chan and Loi suddenly appeared at the restaurant. Lau TT explained that because Chan worried that the buyer would purchase another property through other agents which meant the loss of business, they wanted her to sign on the agreement urgently. As Lau CF was having an argument with Lai over the internal affairs of the defendant and that Lai had indicated that she would not have the property sold through Chan, she needed to have the consent of Lai before signing on the agreement. Chan however still persuaded her to sign on the agreement. Initially, she refused to do so as it was her understanding that all sale and purchase agreements had to be signed by 2 directors to be effective. Chan assured her that even if she had signed on the agreement, they would not "split" the agreement in the event that Lai was not agreeable to the sale. Moreover, the agreement would not be effective with her signature alone and without the chop of the company appended. Following that, Loi took out the agreement and requested her to sign on it. As she did not have her presbyopic lens with her, she asked if Lau TT had read the agreement. He answered in the positive and said that it was in order. She therefore only looked at the price and completion date and then signed on the agreement according to the direction of Loi. After the signing, Loi told her that as the agreement was incomplete, she would only deliver the cheque to her after the signature of Lai and the stamping of the company chop of the defendant.

35.  In the morning of the following day, Lau TT phoned Lau CF and said he was worried that Lai did not have the company chop with her. He suggested her to get hold of the round chop of the company, which was placed in her car. He offered to accompany her to fetch the round chop from her car which was parked at the carpark of her home. When the car arrived, she realized that it was Loi who was driving and Lau TT and Chan were also in the car. After she fetched the round chop, she gave it to Lau TT. On the way to her office, Lau TT contacted Lai and was told that she was not agreeable to the sale and would not put her signature on the agreement. Chan suggested Lau TT to try to persuade Lai again. Just when Lau TT was calling for Lai, the car arrived at the office of Lau CF. Loi stopped the car and grasped the round chop from Lau TT, quickly stamped on the agreement. Lau CF told her to return the agreement to her as Lai had already refused to sign on the agreement. However, Loi only returned the round chop to Lau TT. On seeing that, Lau CF reiterated to them that if Lai refused to sign, the agreement would be of no effect. Chan said to Lau CF and Lau TT that both of them should discuss with Lai further. He assured that he would not "split" the agreement without their consent and would wait for their instructions.

36.  Due to the fact that Lai was adamant of opposing to the sale and she received no confirmation of the cancellation thereof from Chan, Lau CF sent 2 text messages to him at 9.25 pm on that night putting on record that the sale had to be suspended and instructed him not to deliver the agreement to the other side[1].

37.  On the other hand, Chan and Loi told a very different story.

38.  Chan said in the evening of 3 May 2011 at the restaurant, Lau CF told him that the other director knew and agreed to the sale and that she could decide the sale alone. She then signed on the agency agreement and the agreement. He said after Loi signed on the agreement on behalf of the third party, she gave the vendor's copy to Lau CF. Lau CF passed on the agreement together with the cashier order to Lau TT.

39.  In the morning of the following day when the car was still outside the home of Lau CF, Lau CF passed the company chop to Loi who then stamped on each copy of the agreement. Loi then took the purchaser's and the third party's copies and returned the vendor's copy to Lau CF. Lau CF then passed it to Lau TT. After this was done, Loi drove Lau CF back to her office.

40.  Chan said Lau CF never mentioned to him that she needed to seek the approval of the other director nor did she mention that the other director was disagreeing to the sale. He denied that he had ever told Lau CF that the agreement would not be binding until she had obtained the consent and the signature of the other director. He also denied that Lau CF had instructed him that the agreement should only be released upon her instructions to do so.

41.  Chan said that sometime after 1.00 pm (which was one hour or so after the stamping of the agreement with the company chop), Lau CF phoned him saying that there was a disagreement with the other director and asked him to withhold the transaction for the time being. He refused to do so saying that it was not for him to decide whether to withhold the transaction. Shortly afterwards, both Lau CF and Lau TT requested him to withhold the transaction. He rejected the requests and said to them that the agreement was already a binding contract. He confirmed that Lau CF did send him 2 text messages at 9.25 pm that night. He met Lau CF and Lau TT at about 10.45 pm that night. He refused Lau CF's request to destroy the agreement. She became very angry and returned the cashier order to him and left.

42.  Loi said at the restaurant in the evening of 3 May 2011, she asked Lau CF if the other director of defendant knew and agreed to the sale. Lau CF replied in the positive. Lau CF then signed on the agency agreement and the agreement. After she signed on the agreement on behalf of the third party, she gave the vendor's copy to Lau CF, who then passed it to Lau TT together with the cashier order.

43.  In the morning of the following day, she gave the purchaser's copy to Poon, who discovered that the company chop of the defendant was not appended thereon. After informing Chan of the same, Chan asked her to go to Lau CF's office together. She drove Lau CF, Lau TT and Chan to Lau CF's home. Lau CF got hold of the company chop outside her home. Both she and Lau TT took out the copies of the agreement. Lau CF passed the company chop to her. She then stamped on each of the copies of the agreement. She kept the purchaser's and the third party's copies and returned the vendor's copy to Lau CF, who then passed it to Lau TT.

44.  Ten minutes after she parted with Lau CF and Lau TT, Chan received a call from Lau CF. After the call, she was told by Chan that Lau CF requested him to withhold the transaction as there was a disagreement between her and the other director. Chan refused the request saying that the agreement was already a binding contract. She informed Poon of the situation. Poon refused Lau CF's request saying that the agreement was a binding contract. The defendant could not withdraw from the contract without the plaintiff's consent. She later passed the purchaser's copy of the agreement to Poon.

45.  In the morning of 5 May 2011, Chan told her that Lau CF was very angry at his refusing to destroy the agreement and forced him to take back the cashier order. He then passed the cashier order to her.

46.  Lau TT's evidence is generally in line with Lau CF's. Particularly, he said on 4 May 2011 when the car arrived at the office of Lau CF, he was calling Lai once again with a view to persuade her to agree to sell the property. At this moment, Loi grasped the round chop of the defendant from his hand and stamped on the agreement. She refused Lau CF's request to give the agreement to him so that he could persuade Lai to sign on it.

47.  Article 8(a) of the articles of association of the defendant provides that the quorum of a directors' meeting is 2 directors personally present. It is not in dispute that the defendant has 2 directors, namely, Lau CF and Lai. Any decision of the company which requires the resolution of the director' meeting therefore has to be made by them jointly. The decision to sell the property, accordingly, must be made with the consensus both Lau CF and Lai. This requirement of the company is consistent with the evidence of Lau CF, who said but for the assurance of Chan, she would not have signed on the agreement without the consent of Lai.

48.  Both Chan and Loi said it was Lau CF who told them that Lai knew and agreed to the sale before signing the agreement. Obviously, they were ignorant of the procedural requirements of the defendant company and were of the belief that the signing of the agreement by Lau CF plus the chop of the defendant would be sufficient to create a contract binding on the defendant.

49.  Where a property transaction involves a company, the pre-requisite of a valid agreement is of course different from those involving natural persons only. Word of mouth of a director is insufficient to establish the intention of the company. The situation that arose in this case is a living example. To establish the intention of the company, a board resolution of the directors is essential, without which, the signature of the director on the agreement was signed in escrow only. Plainly, Chan and Loi did not take the care of having sight of the board resolution. It seems to me that their main concern was getting Lau CF to sign on the agreement and the agency agreement in order to complete their mission. This was of course far from what is required of in order to create a binding agreement.

50.  Poon harboured the misconceived idea that in order for the agreement to become a binding contract, the chop of the company had to be appended thereon. That was the reason which led to the dispute in evidence as to the manner in which the rubber chop was appended on the agreement.

51.  As a matter of law, the rubber chop of a company has no legal significance. It is no replacement of the metallic seal of the company: see the judgment of Mr Recorder Kotewall, SC in On Hong Trading Co Ltd v Bank of Communications at p12,HCMP3099/1999, 29/2/2000, unreported. Hence, the saga on 4 May 2011 over the stamping of the rubber chop on the agreement is irrelevant as far as the validity of the agreement is concerned.

52.  As Lai opposed to the sale, there had not been a board resolution of the defendant authorizing the sale. It follows that the agreement was signed without authority and is not binding on the defendant.

53.  Looking at the agreement, Lau CF signed her name at various positions where the vendor should append its signature. Apart from her signature, the round rubber chop of the defendant was also appended by the side.

54.  Le Pichon JA in Grande Trade Development Ltd v Bonance International Ltd [2001] 2 HKLRD 759 at p775H-J expressed the following view :

"The signature here was that of a director but that itself was not sufficient to trigger the deeming provision. If the person appending the signature had been described as a person "duly authorized by the board", Turquand's rule would have applied. But that was not the case. Any person, whether or not a director, could have been authorised by the board but as far as I am aware, there is no presumption that if the signatory is a director, he must have been duly authorised by the board."

55.  Therefore, even on the assumption that the plaintiff was entitled to rely on the Turquand rule, the mere signature of Lau CF, without more, would still be insufficient to trigger the rule. Lam J (as he then was) in Yip Lai Fong (supra) at p160I also tentatively held the same view.

56.  For the above reasons, I am driven to the conclusion that the agreement is not binding on the defendant.

57.  Before leaving this topic, I should also deal with the conflict in evidence between Lau CF and Lau TT on the one hand, Chan and Loi on the other.

58.  According to Loi, the plaintiff signed on the agreement at about 7.00 pm on 3 May 2011, she together with Chan and Lau TT met Lau CF at the restaurant 1 hour later.

59.  Lau TT said initially he requested to meet Lau CF at her office. Lau CF said she was about to leave the office as she had a dinner appointment with her husband and a friend. She told him to see her at the office the following day. He therefore told Chan of the situation. Chan responded that as he had already received the agreement and the cheque, the matter should be proceeded immediately to avoid complication. Chan and Loi immediately went to pick up him at San Po Kong and they went to the restaurant to meet Lau CF. This part of his evidence was not challenged by the third party at the trial.

60.  The nature of the job of estate agents is acting as brokers between buyers and sellers of property transactions. Their job would not be complete without the signing of a provisional agreement for sale and purchase. Their earnings are derived from the taking of commission charged usually at 1% of the price of the property from either the vendor or the purchaser, or from both of them. As Godfrey J (as he then was) pointed out in Lee Ming Ching Stephen v Man Sun Finance (International) Corporation Ltd at p15, CACV203/1992, 2/4/1993, unreported, that estate agents' concern is to ensure that they get paid their commission. That being the nature of their business, it is not surprising that Chan saw it fit to approach Lau CF at the restaurant at night without prior appointment or notice. Chan and Loi went there with a purpose, that is to make sure that Lau CF would sign on the agency agreement between the defendant and the third party and also on the agreement.

61.  On the night of 3 May 2011, Lau CF signed on the agreement without the rubber chop of the company. According to the mentality of the third party (as reflected in the idea of Poon and the subsequent act of Loi in stamping the agreement with the chop), the chop is required to be appended in order to create a binding contract. Lau CF was having a gathering with her husband and a friend. She did not have the chop of the company with her, which was a requirement of the third party. Clearly, Lau CF was totally unprepared to sign the agreement on that night but was however persuaded by Chan to do so. 

62.  I am convinced that Lau CF, being a business woman with experience in property transactions, was also conscious of the fact that according to the articles of association of the company, the agreement had to be agreed upon and signed by Lai, when she signed on the agreement, she did not hold out that she had the authority to bind the company. 

63.  On balance, I prefer the evidence of Lau CF and Lau TT. The evidence of Chan and Loi did not sit well with logic and common sense. I reject the evidence of Chan and Loi as being incredible.

64.  I am satisfied that Chan had assured Lau CF that he would not deliver the agreement to the purchaser in the event that Lai did not agree to the sale. He did tell Lau CF that the agreement was not binding with her signature alone and without the chop of the company. I find as a fact that Lau CF signed on the agreement on the basis of Chan's assurance.

65.  I find that Loi did tell Lau CF after her signature that as the agreement was incomplete without the chop of the company, she would not deliver the cashier order representing the initial deposit to her.

66.  As a matter of fact, the lack of the chop on the agreement had led to the saga on 4 May 2011 over the manner in which the rubber chop was appended on the agreement. 

67.  Regarding the saga, though not relevant to the issue in this case, I would add that the evidence of Lau CF and Lau TT are far more credible than those of Chan and Loi. I believe that because Chan and Loi had learnt that Lai was not agreeable to the sale during the journey to Lau CF's office, Loi grasped the rubber chop from Lau TT and stamped on each copy of the agreement without the approval of Lau CF. 

Whether the defendant was in breach of the agreement?

Whether the defendant was liable to compensate the plaintiff the sum of $500,000 pursuant to clause 9 of the agreement?

68.  Due to my finding that the agreement was not binding on the defendant, the answers to these 2 questions must be in the negative.

Whether the third party was in breach of its duty as agent of the defendant?

69.  My findings above have effectively disposed of remaining issues in this case.

70.  However, for completeness sake and to err on the side of excess, I would also deal with this issue.

71.  His Honour Judge Lok (as he then was) in Chun Sue Kwan v Sky Harvest Ltd, DCCJ6027/2004, 13/3/2007, unreported, summarized the principle relating to the capacity of an estate agent at paragraph 19(iv) as follows :

"in considering the capacity of the estate agent, one has to consider its role at different stages of the negotiation leading to the signing of the agreement, the fact that the estate agent was making an offer on behalf of the purchaser or tenant would not preclude the estate agent to be the agent of the vendor or landlord before that event."

72.  The passage was approved by the Court of Appeal in the subsequent appeal of the said case: see CACV174/2007, 6/2/2008, unreported, at para 16.

73.  Hence, the third party being the agent for both the plaintiff and the defendant, would have different capacity at different stages of the negotiation.

74.  Here, we are concerned with the capacity of the third party at the time when the agreement was signed by Lau CF on 3 May 2011.

75.  It is not in dispute that on that night, Lau CF signed an agency agreement appointing the third party as the agent for the defendant in the sale of the property. By that agreement, the third party assumed the role of the agent of the defendant. When Chan and Loi presented the agreement to Lau CF for her signature, the third party must be acting as the agent of the defendant. The third party in such capacity had a duty to the defendant including (but not limited to) following the instructions of the defendant. 

76.  I have already found that Lau CF signed on the agreement on the assurance of Chan that the agreement would not be delivered to the plaintiff in the event that Lai did not agree to the sale. This was a duty which the third party owed to the defendant.

77.  I have also found that on the following day during the journey to Lau CF's office, both Chan and Loi learnt that Lai was opposing to the sale. In those circumstances, the third party had a duty to withhold the transaction and not to deliver the agreement to the plaintiff. Quite to the contrary, Loi grasped the rubber chop and stamped on the agreement without the approval of Lau CF, Chan refused to withhold the transaction and Poon subsequently delivered the agreement to the plaintiff. In my judgment, these are all acts of breach of the third party's duty to the defendant as its agent. I must say their conduct were deplorable.

Whether the third party is liable to indemnify the defendant?

78.  In view of my finding that the defendant is not liable to the plaintiff, this issue does not arise.

Whether the defendant is liable to compensate the third party the sum of $310,000 pursuant to clause 12 of the agreement?

79.  Clause 12 of the agreement provides that :

"If in any case either the Vendor or the Purchaser fails to complete the sale and purchase in the manner herein contained, the defaulting party shall compensate at once the Agent HK$310,000 as liquidated damages."

80.  This clause is typically designed to make sure that the estate agent would get his commission regardless of whether the transaction is completed at the end of the day. Godfrey J (as he then was) in Lee Ming Ching Stephen (supra) at p16 commented that the law does not look kindly on claims by brokers (ie estate agents) to be paid commission when the transaction has not proceeded to completion. The law starts from the premise that it is only upon completion that the broker is to be paid. The law would however give effect to an agreement which clearly provides that the broker is to be paid his commission on some other event.

81.  Accordingly, the effectiveness of the clause depends on the clarity of its meaning. In my view, the triggering words of the clause are "fails to complete", be it the vendor or the purchaser. A property transaction may go off for a variety of reasons. It may be that either the vendor or the purchaser does not want to complete due to the change in market condition; or that the title to the property is defective whereby both parties agreed to cancel the transaction. It may also be that one of the parties entered into the transaction by reason of misrepresentation which renders the contract void ab initio as in the case of Green Park Properties Ltd v Dorku Ltd [2000] 2 HKLRD 400. The situation that arises in this case is yet another example. The list is non-exhaustive. For this reason, it is obvious that the meaning of the triggering words is ambiguous and unclear. On this basis alone, I would hold that the clause is unenforceable.     

82.  Turning to the facts of this case, it seems to me that the conduct of Chan and Loi were very much questionable. Firstly, Chan gave an assurance to Lau CF which served to make her into signing the agreement but later turned his back on her upon learning that Lai was not going to sign on the agreement. His insistence that the agreement was a binding contract is a blatant breach of his assurance to Lau CF. His refusal to withhold the transaction was also a blatant breach of his duty owed to the defendant. Secondly, Loi's act of appending the rubber chop on the agreement was also done without the authorization of Lau CF. In my view, the collective effect of their acts was to force upon the defendant to sell the property so that the third party would be entitled to take commission from the transaction. This is a serious conflict of interest between the third party and its client. Lau CF was misled into signing on the agreement which is not binding on the defendant. That being the case, the defendant cannot and should not be treated as failing to complete the transaction.

83.  For the above reasons, I hold that the defendant is not liable to compensate the third party under clause 12 of the agreement.

Conclusion and orders

84.  For the foregoing reasons, I make the following orders :

(1) the plaintiff's claim against the defendant is dismissed;

(2) a declaration is granted that the agreement is null and void; and

(3) the third party's claim against the defendant is dismissed.

Costs

85.  Costs should follow the event. I make a costs order nisi that :

(1) the plaintiff shall pay the defendant costs of this action in respect of the claim and counterclaim, to be taxed if not agreed; and

(2) the third party shall pay the defendant costs of the third party proceedings including the counterclaim, to be taxed if not agreed.

86.  In the absence of application by any party to vary the same within 14 days from the date of this judgment, the order nisi shall become absolute.

[1] Original text : "我係劉小姐就君臨天下第二座十三E單位由於是公司物業有兩位股東，其中一位股東暫不同意賣和簽名，請暫停交易。"

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