MARITIME CONSULTANT CO LTD v. CENTALINE PROPERTY AGENCY LTD

DCCJ 191/2019

[2021] HKDC 1595

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 191 OF 2019

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JUDGMENT

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Introduction

1.  The plaintiff, a legal consultant for the sale of a property claims against the defendant, an estate agency, for work done in relation to a property transaction handled and completed by the defendant.

Background

2.  The factual matters set out from paragraphs 3-27 below has either been agreed or are indisputable.

The parties

3.  The dispute between the parties was over the sale of a residential development property known as “11 Headland Road” (“the Property”)[1], owned and registered in the name of Wealth Develop Limited (“WDL”), which is a wholly-owned subsidiary of Best Empire Enterprises Limited (“BEE”), a BVI company.[2]  The plaintiff was engaged by BEE and WDL to act as a legal consultant in respect of sale of the property.

4.  The defendant is a company carrying on real estate agency business in Hong Kong engaged by WDL for the sale of the Property.[3]  

The estate agency services agreement between WDL and the defendant

5.  On 7 January 2016, WDL and the defendant entered into an Estate Agency Agreement, whereby the defendant was appointed as WDL’s exclusive agent in the marketing for selling of the Property[4].

6.  In about late January 2016, the defendant located a potential purchaser, Ultra Sino Limited (“Ultra Sino”).[5]

7.  On 18 February 2016, through the defendant, BEE reached a deal with Ultra Sino on the sale and purchase of the shares of WDL at HK$800 million.  BEE agreed to pay the defendant a commission of 3%, equivalent to a sum of HK$24,000,000 as estate agent service fee (“the Service Fee Agreement”)[6] to the defendant.  The Service Fee Agreement provided, inter alia, that:-

“基於中原 [the defendant] 已提供服務，中原 [the defendant] 有權在轉讓方 [BEE] 及認購方簽訂公司股份買賣合約 (下稱「該合約」) 且轉讓方已收取800,000,000港幣後向轉讓方 [BEE] 收取港幣24,000,000元，該等服務費之繳交日期不得遲過10 June 2016。”

8.  On 23 February 2016, to facilitate the transaction of the property, the defendant effected a provisional share purchase agreement between BEE and Ultra Sino,[7] whereby Ultra Sino agreed to buy the shares of WDL at $800 million (“the Provisional Agreement”).[8]

The agreement between the plaintiff and the defendant

9.  In about late February 2016, Mr Andrew Yi Yuefeng (“Mr Yi”), a consultant of the plaintiff met with Mr Jeff Law (“Mr Law”), an estate agent representing the defendant. Mr Yi informed Mr Law that unlike a standard property transaction, for the sale of the Property the plaintiff would need to put in a lot more work in cooperating with Ultra Sino’s due diligence on WDL.  The plaintiff would in the meantime have to negotiate the Sale and Purchase Agreement with Ultra Sino.  As Ultra Sino may refuse to complete if it was either 1) not satisfied with the due diligence on WDL or 2) if the due diligence on WDL was not completed by the completion date, Mr Yi suggested that if the defendant agreed to pay a fee of $1 million to the plaintiff (“the plaintiff’s Fee”), the plaintiff could increase manpower and work overtime to ensure full and timely cooperation with Ultra Sino.[9]  Mr Law replied that he needed to consult the defendant.

10.  On 2 March 2016, Mr Law over the phone told Mr Yi that the defendant agreed to Mr Yi’s proposal (“the Oral Agreement”).[10] 

The events following the Oral Agreement

11.  The following are the non-disputed facts that followed the Oral Agreement:

12.  On 3 March 2016, Mr Law attended the plaintiff’s office and again met with Mr Yi.  In this occasion, Mr Law prepared two documents: 1) “介紹人協議書” (“the Intermediary Agreement”) and 2) “客戶同意書” (“Client’s Consent”) for the plaintiff and BEE’s execution. 

13.  The Intermediary Agreement provided, inter alia, that:[11]-

“有關公司：裕申有限公司 (WEALTH DEVELOP LIMITED) 之股份轉讓本公司 [the plaintiff] 現介紹 BEST EMPIRE ENTERPRISES LTD (“客戶”) 予貴公司 [the defendant] 處理有關公司股份轉讓之事宜。基於上述，本公司 [the plaintiff] 可於客戶繳付服務費後向貴公司 [the defendant] 收取介紹費HK$1,000,000.00。

本公司 [the plaintiff ] 明白本公司 [the plaintiff] 需取得上述客戶同意方可收取貴公司 [the defendant] 之介紹費，若上述客戶表示不同意有關介紹費安排，本人將無權收取介紹費。”

14.  Mr Yi arranged for BEE’s sole director Ms Liang Jing (“Ms Liang”) to sign a client consent “客戶同意書” dated 3 March 2016 (“the Client’s Consent”).[12]  Ms Liang signed to confirm that: “本公司 [BEE] 現同意本公司的分公司 Maritime Consultant Company Limited 就有關股權轉讓事宜，收取貴公司 [the defendant] 的介紹費，港幣1,000,000.00”.[13]

15.  These documents were eventually executed by all of the parties concerned.[14]

16.  On 9 March 2016, Mr Yi met with the defendant’s representative Ms Becky Leung.  Mr Yi on behalf of BEE negotiated with Ms Leung for a reduction of HK$300,000 from the defendant’s service fee of $24 million. The defendant agreed to such proposal (“the Fee Reduction Agreement”).[15] 

17.  On 14 March 2016, BEE entered into a formal Sale and Purchase Agreement with Sino Ultra.[16]  In the meantime, the plaintiff carried out work to facilitate the completion of due diligence and Completion eventually took place on 19 May 2016.[17]

18.  On 19 May 2016 and 15 June 2016[18], the defendant sought payment of service fees HK$24 million from BEE.[19]

19.  By a letter dated 24 June 2016, Mr Ou Yajie (“Mr Ou”) (on behalf of BEE) refused to pay the sum of HK$24 million but instead asked for a further reduction of HK$5 million from the defendant’s service fees.  In the meantime, the defendant shall pay $1.3 million to the plaintiff.[20]

20.  By letters dated 24 June 2016 and 28 June 2016, the defendant  rejected BEE’s proposed deduction and requested payment for $24 million.[21]

21.  BEE by an email and a text dated 5 and 6 July 2016 stated that only 1% commission would be paid to the defendant.[22]  This was again rejected by the defendant by letter dated 8 July 2016 and the defendant insisted on payment of HK$24 million.[23]

22.  By a text dated 21 July 2016, Mr Ou’s stated that only HK$10 million would be paid to the defendant and that the defendant did not have to pay the sum of HK$1.3 million to the plaintiff.[24]

23.  After issuing further demand letters without success, the defendant on 27 July 2016 commenced an action against BEE claiming for HK$24 million in HCA 1954/2016.[25]

24.  On 28 May 2018, HCA 1954/2016 was settled by consent for a sum of HK$16 million.  This sum has since been paid to the defendant by BEE.[26]

25.  On 28 June 2018, the plaintiff sent to the defendant a demand letter for payment of the plaintiff’s Fee.[27]

26.  On 5 July 2018, Messrs Cheung & Choy on behalf of the defendant replied stating that the plaintiff was not entitled to the plaintiff’s Fee on the basis that (i) Ultra Sino was not introduced by plaintiff, and (ii) that the defendant only received a commission of HK$16 million as opposed to the full $24 million.[28]

27.  On 11 July 2018, the plaintiff’s solicitors insisted that the defendant paid the plaintiff the sum of HK$1 million and on 14 January 2019 the plaintiff commenced the present action.[29]

The dispute

28.  It is the plaintiff’s case that it has performed the Oral Agreement and completed the due diligence on WDL in full and timely cooperation with the Purchaser.[30]  Thus, the plaintiff should be entitled to the agreed $1 million from the defendant.[31]

29.  The defendant on the other hand states that the Oral Agreement was subject to the plaintiff obtaining BEE’s written consent and on condition that the defendant would only pay HK$1 million to the plaintiff upon receipt of the full amount of commission agreed to be paid by BEE.[32]  The defendant further denies that the plaintiff has performed the obligations under the Oral Agreement.[33]  In any event, since BEE did not pay the full amount of HK$24 million to the defendant, the plaintiff is not entitled to HK$1 million.[34] 

The issues

30.  Issue arises as to what was the term agreed between the parties?

(1)  According to the plaintiff, the defendant had agreed to the terms as proposed by the plaintiff, namely that the plaintiff will increase manpower and work overtime in respect of the due diligence process to ensure timely completion in consideration for the plaintiff’s Fee;[35]

(2)  The defendant, on the other hand, asserts that Mr Law, on behalf of the defendant, imposed a term, which Mr Yi agreed, that the plaintiff’s Fee is payable only upon the defendant receiving the full HK$24 million commission from BEE.[36]  

The witnesses

31.  The plaintiff’s list of witnesses included:-

(1)  羿岳峰Mr Yi Yuefeng (alias Andrew Yi) (“Mr Yi”);  [37]

(2)  邱夕明Mr Simon Qiu[38]; and

(3)  歐亞傑.[39]

32.  The plaintiff at trial called witnesses (1) and (2) only.

33.  The defendant called Mr Jeff Law (羅清南) (“Mr Law”) as its only witness.[40]

The Analysis

34.  This court is asked to determine whether in the telephone conversation between Mr Law and Mr Yi on 2 March 2016, Mr Law simply agreed to Mr Yi’s Suggestion?  Or did Mr Law inform Mr Yi and Mr Yi in turn agreed that the defendant would accede to Mr Yi’s suggestion subject to the plaintiff obtaining BEE’s written consent and on condition that the defendant would only pay HK$1 million to the plaintiff upon receipt of the full amount of commission to be paid by BEE?[41]

The written agreement

35.  In respect of the payment of HK$1 million, the parties signed a written document headed Introduction Agreement.  In this document, the HK$1 million was to be paid to the plaintiff as an introduction fee.  According to Mr Law, the defendant can only approve sharing of profit on the basis of introduction fee. It is not disputed that both parties at the time of the Oral Agreement knew that that there was no basis for any introduction fee to the plaintiff, as neither BEE nor the purchaser was introduced by the plaintiff.  Whilst it was stated in the agreement that the HK$1 million was to be payable as a referral commission, all the parties concerned, including the plaintiff, the defendant, and BEE knew that the nature of payment was not for an introduction fee.

36.  This Introduction Agreement provided: “本公司 [the plaintiff] 可於客戶繳付服務費後向貴公司 [the defendant] 收取介紹費HK$1,000,000.00。”.[42]

37.  Whilst this written agreement stated that it was upon the defendant receiving service fees from its client the plaintiff may collect its introduction fee from the defendant, this agreement did not state whether the plaintiff’s introduction fees were subject to the defendant receiving full service fees from its client.

The plaintiff’s role

38.  The plaintiff’s Mr Qiu Xin,[43] signed the Provisional Purchase Agreement and the Fee Reduction Agreement for and on behalf of BEE.[44]

39.  The plaintiff was BEE and WDL’s legal consultant in the sale of WDL’s shares and was engaged by BEE to assist in the due diligence of the sale of WDL’s shares.[45]

40.  Mr Yi signed on behalf of WDL for 1) the defendant’s agent agreement dated June 2015^[46] and 2) the sole agent agreement dated 7 January 2016^[47]

41.  The plaintiff hasclearly played an important role in the sale and purchase of the Property.

The oddity of the Oral Agreement

42.  As a legal consultant engaged by BEE to assist in the sale and purchase of the Property, it would have been part and parcel of the plaintiff’s duty to assist in ensuring the due diligence of the sale of WDL’s shares.  Had there been a need to increase manpower for the job, it would have been natural for the plaintiff to have made such request to its employer, BEE.  According to Mr Yi, the plaintiff charged BEE on a time costs basis[48] as opposed to an agreed fee basis.  Had any extra costs been involved for the need for the plaintiff to bring in manpower or for the staff to work overtime, it could have been included in the time charge to BEE.  Apart from stating that BEE was not generous, Mr Yi did not come up with any reasonable explanation for not charging the extra manpower and overtime to BEE’s account.

43.  When taking into account the fact that the plaintiff was given the task of ensuring due diligence for an HK$800 million purchase, as legal adviser, the plaintiff should have been well aware from the time they accepted the task that they would have to deal with due diligence for the buy and sell of the company shares.  In any event, it would be difficult to imagine BEE or WDL not granting the plaintiff’s request to increase manpower or allow the staff to work overtime and risk the deal falling through.

44.  However, instead of making the request to BEE, the plaintiff turned to the defendant, an estate agent, for a fee of HK$1 million to enable it to increase manpower and for its staff to work overtime to complete due diligence for BEE.  This seemed to be a rather bold request from the plaintiff.  But amazingly, the defendant agreed to such an unreasonable demand.

45.  Mr Law stated that the defendant had little interest in the work carried out by the plaintiff.  However, the defendant was conscious that Mr Yi was the contact person on behalf of BEE. To the defendant, this was seen by the defendant as a request for a fee to ensure smooth transaction of the deal.  Mr Yi apparently had the trust of the seller and was involved in the negotiation of the deal, including price negotiation and signing of contracts.  To Mr Law, Mr Yi was the key person who was in the position to ensure that the deal goes through smoothly and he was indeed not a person whom the defendant could afford to upset.[49] When Mr Yi made a request for HK$1 million, Mr Law believed that Mr  Yi was in fact making a threat.[50]  Mr Law thought that if the defendant did not adhere to Mr Yi’s request, there may be a prospect that the deal would not go through smoothly, which in turn may upset the defendant’s prospect of getting the HK$24 million commission.[51] 

46.  Mr Law states that if he had known at the time of this Oral Agreement that BEE would eventually reduce the defendant’s commission by as much as HK$8 million, the defendant would not have agreed to pay the HK$1 million to the plaintiff.[52]

Simon Qiu’s evidence

47.  Mr Simon Qiu is the sole director of the plaintiff.  When being cross-examined about what he was told by Mr Yi about the deal with the defendant, Mr Simon Qiu stated that according to Mr Yi, during the conversations between Mr Yi and Mr Law in early March 2016, Mr Law told Mr Yi that the defendant would agree to pay HK$1 million to the plaintiff conditional upon the defendant’s receipt of full commission.[53] This part of Mr Simon Qiu’s testimony clearly supports Mr Law’s version.

Findings

48.  I accept Ms Leung, counsel for the defendant’s submission that the request of $1 million by the plaintiff from the defendant for the increase of manpower and for the plaintiff to work overtime did not make any commercial sense.  The defendant was not the plaintiff’s employer, had there been a need to increase manpower for the due diligence work, the plaintiff could have turned to BEE or simply have added these extra expenses to their bill to BEE, as the plaintiff charge BEE on an hourly basis as opposed to an agreed fees basis.  There was simply no commercial basis for the plaintiff to demand such payment from the defendant, who only held an intermediary role.  I find that the plaintiff’s proposal to increase manpower and for its staff to work overtime to ensure due diligence of WDL was not a genuine reason for the plaintiff to request HK$1 million from the defendant.

49.  In Wood v Capita Insurance Services Ltd[2017] AC 1173, at §11 it states:-

“11. Lord Clarke of Stone-cum-Ebony JSC elegantly summarized the approach to construction in the Rainy Sky case … Interpretations is, as Lord Clarke JSC stated in the Rainy Sky case (para 21), a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense…”

50.  Taking into account all the surrounding circumstances, including 1) the background leading to the Oral Agreement, 2) the bargaining power of the plaintiff and defendant, 3) the role of the parties, 4) the need and purpose for making the Oral Agreement, I find Mr Law’s evidence to be more logical and in line with commercial reality.  Whereas Mr Yi’s version plainly defies business common sense. In my judgment, the plaintiff’s alleged need to put in extra manpower and hours to ensure due diligence of WDL was merely an excuse made up by Mr Yi to justify the plaintiff’s goal to obtain from the defendant a share of its lucrative commission.  Like the so called “Introduction Fees”, neither party seriously believed that the payment of HK$1 million were to be made for the plaintiff’s extra manpower and hours.  This may also explain why the plaintiff never bothered to keep record of the extra time spent in respect of the extra manpower and hours put in for the due diligence work.

51.  Mr Simon Qiubeing the plaintiff’sdirector has no reason to give evidence against the plaintiff’s interest.  There is no reason for the court not to accept Mr Simon Qiu’s evidence on what he was told by Mr Yi.  I accept Mr Simon Qiu’s evidence that according to Mr Yi, during the conversations between Mr Yi and Mr Law in early March 2016, Mr Law told Mr Yi that the defendant would agree to pay HK$1 million to the plaintiff conditional upon the defendant’s receipt of full commission.[54]  I accordingly find that during the early March 2016 conversation, Mr Yi and Mr Law did agree that the payment of HK$1 million from the defendant to the plaintiff was to be made subject to the defendant receiving a full commission from BEE.

52.  Mr Yi took part in the negotiation of service fees of the defendant.  It is not disputed that at the time of the Oral Agreement, both Mr Yi and Mr Law were aware that the commission rate for the property was 3% and the full commission to the defendant was at HK$24 million.  A reasonable person with all the background knowledge at the time of Oral Agreement, in particular when giving effect the phrase “full commission” or “receiving the full commission”, would have understood the parties to have meant the payment of HK$1 million was subject to the defendant receiving its full commission at HK$24 million as opposed to an amount which the defendant is entitled to as a matter of law. I accordingly find that it was the agreement of the parties that the payment of HK$1 million to the plaintiff was subject to the defendant being paid the HK$24 million commission by BEE.

53.  The defendant did not receive its HK$24 million commission but instead received a major reduction at HK$16 million.  Accordingly, the condition of the Oral Agreement was not fulfilled and the defendant was not obliged to make payment of HK$1 million to the plaintiff and the plaintiff’s claim fails.

Orders

54.  I make the following Orders:-

(1)  The plaintiff’s claim be dismissed.

(2)  Costs of this action, including all reserved costs, if any, be to the defendant against the plaintiff with certificate for counsel to be taxed if not agreed.

55.  I thank counsel for their helpful assistance.