LANBASE SURVEYORS LTD. v. HOLYROOD LTD.

HCA481/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.481 OF 1999

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J U D G M E N T

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1. The plaintiff is an incorporated firm of surveyors. It is suing the defendant for the balance of professional fees in the sum of $952,800.

The Background

2. The following background are not in dispute.

3. The defendant is the developer of Inland Lot No. 7878 on the Peak. P&T Architects and Engineers ("P&T") is the architect for the defendant. The defendant has applied to the Lands Department for modification of the lease. By a letter dated 27 April 1998, the Lands Department informed the defendant that the premium payable was $13.8 million.

4. By a letter dated 11 May 1998 sent by P&T to the plaintiff, P&T sought the advice of the plaintiff on the following :

"(a)	the chance of obtaining a premium reduction;
(b)	the time required for application of premium reduction;
(c)	your consultancy fee for application of premium reduction.

...

Please be advised that building works are scheduled to commence at the captioned lot in June 1998 and therefore any application for reduction of premium has to be submitted to and reviewed by the Lands Department as a matter of urgency to avoid any delay to the master programme."

5. By a letter dated 13 May 1998 sent by the plaintiff to P&T, the plaintiff stated the following :

"Thank you for your letter of 11 May 1998. In view of the current market conditions, the chance of obtaining a premium reduction is reasonably high. It would take about two weeks to prepare the premium appeal submission and about two months for the Lands Department to process it.

Our fee for lodging an appeal and subsequent negotiation with the Lands department are:

1.	A fee of HK$30,000.00 for the preparation of the appeal. 50% payable on confirmation of instruction and 50% payable on submission.
2.	A negotiation fee at 8% of the reduction in premium. Such fee shall be payable on receipt of the revised assessment from government."

6. On 18 May 1998, the defendant countersigned the above letter and confirmed and accepted the terms of the letter ("Engagement Letter").

7. By a letter dated 20 May 1998 sent by the plaintiff to the Lands Department, the plaintiff stated the following :

"We act on behalf of Holyrood Limited to lodge an premium appeal for the captioned property. The authorization letter is enclosed for your reference.

We refer to your basic terms offer letter dated 27 April 1998 and would like to advise that all the terms are acceptable except the premium figure. Our valuation of the premium is being prepared and will be submitted to you very soon. The administrative fee has been settled and a copy of the receipt is also enclosed for your attention."

8. On 16 June 1998, the plaintiff enclosed the draft written submissions to the Lands Department for P&T's comment.

9. On 19 June 1998, the plaintiff submitted to the Lands Department the appeal against the premium assessment and the written submissions stated that the premium should be reduced to $2.57 million ("1st Submissions").

10. On 30 September 1998, the plaintiff submitted the revised premium assessment for the reference of the Lands Department and stated the premium should be further reduced to $990,000 ("2nd Submissions"). The 2nd Submissions were prefaced by the following :

"As per request, we submit herewith our revised premium assessment for your reference."

11. By a letter dated 9 October 1998 sent by the defendant to the plaintiff, the defendant stated the following :

"We refer to your letter dated 13/5/98 in which you gave us a quote for preparing premium appeal submission on the understanding that such submission will take only two weeks for preparation.

To our surprise your letter of appeal was submitted to the District Land Office 6 weeks later, i.e. on 22/6/98. This is contrary to the terms you had previously promised.

Furthermore in view of the current economic situation in Hong Kong there is a sentiment in the market that the Government is encouraging developer to build. This sentiment is in fact the consensus among the property developers, and is in fact happening: Government is reducing the land premium across the board.

Moreover our project like many others has come to a standstill waiting for the market to improve. Unless there is improvement it is not at all profitable for us to proceed.

In view of the above situation we are not prepare to pay your requested high negotiation fee of 8%. (bearing in mind you have already breached your promise in the first place by failing to submit the appeal in two weeks)"

12. By a letter dated 19 October 1998 sent by the Lands Department to the plaintiff, the Lands Department stated the following :

"I refer to your letters dated 20 May and 30 September 1998 appealing against the premium assessed in respect of the above proposed lease modification.

Your appeal has been carefully considered but I regret to advise you that your counter-offer is unacceptable to the Government. After reviewing the case with reference to your submission, Government is now prepared to revise the premium to $1.89 million.

The above revised premium is open for acceptance within 21 days from the date of this letter and I shall be obliged to hear from you within this period. If no written acceptance is received within this time limit, the terms previously offered by this Department including the above revised premium will be deemed to have been withdrawn.

In the letter dated 27 April 1998 issued by the District Lands Office/Hong Kong West, it is stated that if you appeal and your appeal is rejected, the administrative fee paid is not refundable. Your appeal, as mentioned above, has been considered and rejected. Therefore, the administrative fee paid by your client will not be refunded."

13. On 20 October 1998, the plaintiff wrote to the defendant c/o P&T informing the premium reduction of 86.3% from $13.8 million to $1.89 million. The plaintiff enclosed the debit note for the professional fee of $952,800 being 8% of the reduction in premium.

14. On the same day, P&T wrote to the defendant referring to the premium appeal submitted by the plaintiff on behalf of the defendant and informed the defendant of the reduction.

15. On 6 November 1998, P&T wrote to the defendant referring to the premium appeal submitted by the plaintiff on behalf of the defendant and reminded the defendant that the Lands Department's revised premium offer was open for acceptance until 9 November 1998.

16. On 9 November 1998, the defendant accepted the revised premium in a telephone conversation with P&T. On the same day, P&T wrote to the plaintiff informing it the acceptance by the defendant and asked the plaintiff to proceed with the written acceptance letter to the Lands Department before 9 November 1998.

The plaintiff's case

17. The plaintiff's case is as follows:

(1)	it lodged the appeal on behalf of the defendant;
(2)	the lease modification premium was reduced by $11.9 million;
(3)	the plaintiff is entitled to the negotiation fee of $953,800 being 8% of the premium reduction pursuant to the terms of the Letter of Engagement.

18. Mr C K Chan ("Chan"), a director of the plaintiff at the material time, gave evidence for the plaintiff. Chan said that the so called premium appeal procedure was an administrative procedure and was not laid down in any statutory rules. Once the surveyor gave notice to appeal and the administrative fee was paid, the case would be put in the queue pending consideration at an internal meeting of the Lands Department. There was no fixed appeal period but the waiting time was usually about two months. The relevant date for the assessment of the premium would be the date of the internal meeting. Hence, the surveyor would find out the date of the internal meeting and keep track of any adjustments between the date of the initial submissions and the meeting.

19. Chan said his assistant found out the date of the internal meeting. Shortly before 30 September 1998, he telephoned Mr James Cho ("Cho") of the Lands Department to discuss the matter and Cho said the arguments in the 1st Submissions were quite clear already. He wanted to refer to further comparables and Cho suggested that he send in further submissions in writing.

20. After he received the letter dated 9 October 1998 from the defendant, he had two telephone conversations with Mr Charles Woodhouse ("Woodhouse"), General Manager of the defendant at the material time. Chan refused to accept a fee cut. Woodhouse never terminated the service of the plaintiff. There was no conversation before 30 September 1998.

The defendant's case

21. The defendant's case is as follows :

(1)	it is an implied term of the Engagement Letter that time is of the essence and the appeal must be submitted within about two weeks of the engagement (i.e. by about 31 May 1998);
(2)	the plaintiff was in breach of the Engagement Letter by submitting the appeal on 19 June 1998;
(3)	prior to 30 September 1998, the defendant terminated its service of the plaintiff;
(4)	the plaintiff made the 2nd Submissions without the authority of the defendant;
(5)	in any case, the plaintiff has not entered into negotiation with the Lands Department and is not entitled to receive the negotiation fee;
(6)	even if there were any negotiation, the plaintiff's work was not causative of the reduction in premium as the appeal was rejected and the reduction was caused by a downward movement in property market generally.

22. Woodhouse gave evidence for the defendant. He said after 15 September and before 30 September 1998, he had two telephone conversations with Chan. In the first conversation, he complained that the plaintiff was late in making the 1st Submissions, and unless the plaintiff was willing to accept a substantial reduction of fee to about 10% of the 8%, its service would be terminated. Chan said he had to consult his partners. In the second conversation, Chan refused to reduce the fee and he terminated the plaintiff's service.

23. Woodhouse said the defendant's letter dated 9 October 1998 was signed by Mr Law Fong, director of the defendant, and not himself. Both Law and himself agreed that the plaintiff's service was terminated, but Law was kind hearted and did not want to mention it in the letter.

24. Woodhouse was involved in the premium assessment of the redevelopment of the Depot of the China Motor Bus. Unlike the present case, there was negotiation between the developer and the Government.

Termination of service

25. Mr Au for the defendant submitted that P&T had made it clear to the plaintiff that the appeal must be proceeded with as a matter of urgency, and the defendant stated in the Engagement Letter that the preparation of the appeal would take about two weeks. Hence, it should be implied as a term of the Engagement Letter that time was of the essence and the 1st Submission should have been lodged within about two weeks. The defendant was entitled to terminate the plaintiff's service for delay in making the 1st Submissions.

26. Alternatively, the Engagement Letter could be terminated by the defendant giving reasonable notice.

27. Mr Yin for the plaintiff that the "timetable" of about two weeks for the preparation of the appeal was an indication only in response to P&T's enquiry and the use of the word "about" could not make time the essence of the Engagement Letter.

28. I reject Woodhouse's evidence that he had ever terminated the plaintiff's service in late September. Termination was not mentioned in the defendant's letter dated 9 October 1998. The letter mentioned the lodging of the 1st Submissions in six instead of two weeks, and sought a reduction in fee. I see nothing in any kind heartedness in not mentioning any termination if it had taken place. I also fail to see why P&T were not informed if the plaintiff's service had been terminated.

29. Further, even if there were breach of the implied time clause, the defendant must have waived it and affirmed the contract. The 1st Submissions were sent to P&T for comment before submitted to the Lands Department. No complaint was raised. All subsequent correspondence between P&T and the plaintiff and/or the defendant pointed to the engagement of the plaintiff still being on foot.

30. I find that the defendant has never terminated the service of the plaintiff prior to the acceptance of the revised premium assessment by the defendant. Hence, it does not befall me to find whether time is of the essence of the Engagement Letter, or whether the defendant is entitled to terminate the plaintiff's service by giving reasonable notice.

Negotiation Fee

31. Mr Au submitted that on the proper construction of the Engagement Letter, two fees are chargeable :

(1)	A fixed fee of $30,000 for all preparatory works for lodging the appeal and the written submissions;
(2)	The Negotiation Fee on "subsequent negotiation" resulting in any reduction in the premium.

32. Mr Au referred to the meanings of "negotiation" and "negotiate" in The New Shorter Oxford English Dictionary on Historical Principles :

"negotiation 2 A process or act of conferring with another or others to arrange some matter by mutual compromise or settlement, a discussion with a view to some compromise or settlement. 3 The action or process of negotiating with another or others, discussion with a view to settlement or compromise. 4 The action of crossing or getting over, round or through some obstacle.

"negotiate 1a Communicate or confer (with another or others) for the purpose of arranging come matter by mutual agreement; have a discussion or discussions with a view to some compromise or settlement."

33. Mr Au submitted that negotiation needs not be oral, but must be interactive, to and fro, with a view to a compromise.

34. Mr Au submitted that the appeal was lodged when the 1st Submissions were made on 19 June 1998, and not by the plaintiff's letter dated 20 May 1998, which was only an intention to lodge an appeal later. There was no evidence of any negotiation subsequent to the lodging of the appeal. Contacting and enquiring as to when the appeal would be considered could hardly be negotiation. The 2nd Submissions were included in the fixed fee and were not part of the subsequent negotiation.

35. Mr Au submitted that Chan's evidence that he had contacted the Lands Department and Cho suggested him to put in further written submissions was not credible as it was not mentioned in Chan's witness statement, but instead, Chan stated that he put in the further submissions in view of the movement of the property market since the lodging of the appeal. Chan originally said he requested a meeting with Cho but Cho said it was not necessary as the 1st Submissions were quite clear. Under cross-examination, Chan said he could not recall whether he requested a meeting.

36. I accept the evidence that Chan had contacted Cho to discuss about the revised assessment shortly before the 2nd Submissions. The 2nd Submissions were prefaced that the revised premium assessment were submitted for the reference of the Lands Department as per request.

37. Looking at the Lands Department's letter dated 19 October 1998, it is clear that the Lands Department regarded the appeal was initiated by the plaintiff's letter dated 10 May 1998. It stated that the plaintiff's counter-offer was unacceptable to the Government. It re-offered the revised premium of $1.89 million to the defendant, which was open for acceptance within 21 days. I find it beyond reasonable argument that such a process of counter-offer and re-offer is a process of negotiation, albeit in writing.

38. I find that the plaintiff did represent the defendant in negotiation by means of the 1st and 2nd Submissions and the telephone conversation between Chan and Cho of the Lands Department.

Rejection of the appeal

39. Mr Au referred to the statement of Chan that the extent of reduction of the premium after the appeal was due to the in-depth research, market analysis and good presentation of argument put forward in the appeal submission rather than the downturn of the property market. As the appeal was rejected by the Lands Department, the plaintiff's efforts were fruitless and not causative of any premium reduction offered by the Government.

40. Mr Yin submitted that the 1st and 2nd Submissions constituted negotiation with the Lands Department, and the state of the property market was fortuitous. The structure of a percentage contingency fee best reflected the reward of the plaintiff's efforts being dependant on the result of the reduction. As the 1st Submissions were adequate, it would be too whimsical to depend on whether any revised submissions were required.

41. It should be noted that the Lands Department did state in their letter of 19 October 1998 that after reviewing the case with reference to the plaintiff's submissions, the Government was prepared to revise the premium to $1.89 million. The Lands Department clearly referred to the plaintiff's submissions in offering the reduced premium. I reject the argument that the plaintiff's work was not causative of the premium reduction.

42. Granted that property prices must have come down during the relevant period. After all, premium assessment is concerned with relevant movements in the property market. In the instant case, all the conditions for the lease modifications were accepted apart from the premium figure. There is nothing incongruous between the plaintiff's efforts and the downward trend in the property market.

Conclusion

43. Judgment is entered in favour of the plaintiff in the sum of $952,800, with interest at judgment rate from the date of the writ. Subject to any costs order made previously, the defendant shall pay the costs of the action to the plaintiff.