EASY PROPERTY CO LTD v. CHOI LO KA

[English Translation – 英譯本]

HCSA 36/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 36 OF 2004

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL CLAIM

NO. 97102 OF 2003)

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BETWEEN

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JUDGMENT

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Background

1. The Claimant, an estate agency, instituted proceedings in the Small Claims Tribunal against the Defendant for the recovery of commission in respect of a sale and purchase of residential property. The claim was dismissed after hearing. The Claimant now appeals against the dismissal.

2. The undisputed facts reveal that, upon referral by the Claimant, the Defendant entered into a provisional sale and purchase agreement with the owner of a residential unit at Taikoo Shing, by which the Defendant agreed to purchase that unit.

3. After the parties entered into the provisional sale and purchase agreement, they proceeded to enter into a formal sale and purchase agreement through their respective solicitors in accordance with the terms of the provisional agreement. Subsequently, certain disputes arose between the parties’ solicitors in respect of some requisitions of title and replies thereto, and both of the solicitors held to their own views. In the end, the parties reached a compromise through their solicitors and entered into a cancellation agreement, as a result of which the formal sale and purchase agreement was rescinded and the transaction cancelled.

4. As the parties reached a compromise in the end and entered into an agreement accordingly, the above disputes over requisitions of title and replies thereto were never submitted to the court for determination.

5. In the above circumstances, the purchaser refused to pay to the Claimant any commission.

Standard estate agency agreement

6. In respect of the engagement of the Claimant as the estate agent in the above transaction, the Claimant and the Defendant entered into a standard estate agency agreement in accordance with the provisions of the Estate Agents Ordinance (Cap. 511 of the Laws of Hong Kong) (see sections 45 and 46 of the Ordinance). The standard estate agency agreement, which has been prepared by the Estate Agents Authority, is set out in Form 4 of the Schedule to the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation (Cap. 511C of the Laws of Hong Kong).

7. The estate agency agreement signed by the parties herein was written in Chinese. Nevertheless, the contents of that agreement entirely followed those of Form 4 above, and the standard estate agency agreement in Form 4 is available in both Chinese and English versions. Therefore, both versions of the relevant standard estate agency agreement are set out hereinbelow, which will assist in interpreting the terms of the agreement in my judgment below:

The terms in the provisional sale and purchase agreement in respect of payment of commission

8. The provisional sale and purchase agreement, which the Defendant as the purchaser and the owner as the vendor entered into upon referral by the Claimant, was in fact a tripartite agreement. Apart from the vendor and the purchaser, the Claimant also signed the provisional agreement as a third party. Apart from setting out the rights and duties of the parties in the sale and purchase transaction, the provisional agreement also provided for the payment of commission by each party to the Claimant.

9. This notwithstanding, it was not disputed by the parties at the present hearing that the issue of whether the Claimant as the estate agent may recover commission from the Defendant has to be determined by reference to the relevant provisions of the standard estate agency agreement. For example, clause 9 of the agreement provided that, although the Claimant as the estate agent and the Defendant as the purchaser were free to stipulate extra terms to the agreement, such terms “cannot conflict with or limit the other terms of [the] Agreement”. Having considered sections 45 and 46 of the Ordinance, I believe it is beyond doubt that the legislative intent is to govern, by means of the standard estate agency agreement, the circumstances under which an estate agent may seek commission from the purchaser of a residential property. Where the parties have by agreement specified additional circumstances under which commission is to be paid and the purchaser is prepared to pay commission in accordance with such agreement, the estate agent may of course receive commission accordingly; where, however, the purchaser retracts such agreement and fails to pay commission under the specified additional circumstances, the estate agent may face difficulty in seeking recovery of commission on the basis of the additional agreement: see sections 45 and 46 of the Ordinance.

10. Having said that, I do not propose to delve into this here, the reason being that the Defendant to the present appeal is not legally represented and, at the hearing, the submissions of Mr Woo, Counsel for the Claimant, focused entirely on the terms of the standard estate agency agreement and placed no reliance on the relevant terms of the provisional agreement. According to Mr Woo’s submission, the provisional agreement neither imposed on the Defendant as the purchaser additional duties to pay commission nor enlarged the circumstances under which commission was payable. This being the case, it is not necessary for me to further deal with the terms of the provisional agreement; nor do I have to adjudicate upon the issue of whether an estate agent and a purchase may, in addition to the circumstances for payment of commission as stipulated in the standard estate agency agreement, set out terms providing for other circumstances for payment of commission, or of the legal effect or consequence of such terms.

Estate agency agreement

11. I now return to the standard estate agency agreement. Clause 3 of the agreement provides that the commission to be paid by the purchaser to the estate agent is to be governed by Schedules 1, 3 and 5 to the agreement. Schedule 1 relates to the property to be purchased, Schedule 3 sets out the circumstances under which commission is payable by the purchaser, and Schedule 5 explains some of the words and phrases used in the estate agency agreement.

12. Before looking at the provisions of Schedule 3, I consider it necessary to point out that Schedule 2 to the standard estate agency agreement, which sets out the duties of the estate agent, requires the agent to “(d) assist the purchaser in entering into a binding agreement for sale and purchase with the vendor …”, but this duty does not include a duty to assist the vendor and the purchaser to complete the sale and purchase of the relevant property after they enter into the above agreement.

13. I have noticed the development of the case law on the question of the circumstances under which an agent may receive commission. Put simply, the answer to that question depends on the contents of the agency agreement. The following question is particularly noteworthy: is an agent entitled to receive commission when he performs the duty to assist his client in entering into a binding sale and purchase agreement with the other party, or does he also have to go further and assist his client to complete the relevant property transaction before he can earn any commission? If an agent’s duty is confined to assisting his client in entering into a binding agreement with the other party, then generally speaking, unless other specified in the agency agreement, the agent is entitled to a commission once the sale and purchase agreement is entered into, and it makes no difference whether the parties are then able to complete the transaction in accordance with the binding agreement that they have signed. This appears to be the line along which the common law (including common law jurisdictions apart from England) is developing: see, for example, Luxor (Eastbourne) Limited v. Cooper [1941] AC 108; Midgley Estates Ltd v. Hand [1952] 2 QB 432; Scheggia v. Gradwell [1963] 1 WLR 1049; Latter v. Parsons [1906] 26 NZLR 645; McLennan v. Wolfsohn [1973] 2 NZLR 452.

14. In my view, the common law principles as epitomized in the above cases provide, to a considerable extent, a meaningful background against which the provisions in the standard estate agency agreement regarding payment of commission are to be properly interpreted. The above cases also show that, on the question of whether, having assisted his client in entering into a binding sale and purchase agreement with the other party, an estate agent is still entitled to receive a commission if the parties do not complete the sale and purchase for some reason (particularly by reason of disputes over title), there is no categorical answer whether as a matter of law, common sense or ethics. In other words, from a common law perspective, where the parties to a sale and purchase transaction do not complete the transaction in accordance with the signed sale and purchase agreement by reason of disputes over the title to the subject property, this does not necessarily mean that the estate agent has to bear the consequence thereof, namely that the agent is to be deprived of any commission; on the contrary, this also does not necessarily mean that the client has to pay commission. There is no categorical answer to this question whether as a matter of law, common sense or ethics, and all depends on the provisions of the relevant agency agreement.

Schedule 3 Section 1

15. I now return to look at the provisions of Schedule 3. Having considered submissions by both parties, I take the view that Schedule 3 Section 1 sets out the purchaser’s liability to pay commission. In other words, Section 1 specifies the circumstances under which an agent is entitled to a commission: Section 1 provides that, if during the validity of the agency agreement the purchaser through the agent enters into a binding agreement for sale and purchase with the vendor in respect of the relevant property, then the purchaser is liable to pay commission. This is the only condition for the earning of commission by the agent and also the only scenario in which the purchaser is liable to pay commission.

16. I do not consider that the proper interpretation of the provisions of the Schedule is in any way affected by the fact that Section 1 allows the parties to elect whether the purchaser is to pay the agent commission upon the signing of the sale and purchase agreement or upon the completion of the relevant property transaction. The above option merely relates to the time of payment of commission and has no bearing on the circumstances under which the liability to pay commission arises.

17. Section 1 makes it clear at the outset that it is “[s]ubject to sections 2 and 5 of this Schedule”. This means that, in determining whether the purchaser is liable to pay commission, the provisions of Section 2 must be taken into account, and that Section 2 prevails over Section 1. (It is not necessary to discuss Section 5, which is irrelevant to the facts of the present case.)

Schedule 3 Section 2

18. Having considered submissions by both parties, I take the following to be the proper interpretation of Section 2: where a binding agreement for sale and purchase of the relevant property has been entered into, and the property transaction falls through without “fault” on the part of the purchaser, the purchaser is not liable to pay any commission. In other words, where a sale and purchase agreement has been entered into and then the transaction falls through by reason of “fault” on the part of the purchaser, this does not fall within the ambit of Section 2, which therefore does not apply, and Section 1 remains applicable so that the purchaser is liable to pay the agent commission.

19. However, as is the case with Schedule 3 Section 1, Section 2 is expressly made “[s]ubject to section 3 of this Schedule”. In other words, in determining whether Section 2 applies, one must also consider whether Section 3 is applicable, and Section 3 in turn prevails over Section 2.

“Fault”

20. Section 2 refers to a property transaction falling through without “fault” on the part of the purchaser. What then is “fault”? In my view, on a proper interpretation of the provision, “fault” means the purchaser is in breach of the binding agreement that he has entered into or of some other applicable law. Furthermore, there must be a causal connection between the “fault” and the non-completion of the transaction (the Chinese version reads:“令物業交易未能完成”).

21. If the parties to a property transaction cancel that transaction by reason of disputes between them as to whether good title to the property has been shown, then there is no question of the non-completion of the transaction being “caused” by any “fault” on the part of the purchaser. This is because, as the transaction falls through by means of a cancellation agreement between the parties, the purchaser cannot be said to have acted in breach of the sale and purchase agreement and therefore cannot be considered “at fault”.

22. By the same token, if the dispute between the parties over title cannot be resolved by a settlement agreement and has to be litigated, and the court rules that the purchaser is not bound to complete the transaction as he is entitled to reject the proof of title provided by the vendor or the vendor’s answers to requisitions on title, then of course the purchaser is not “at fault”, and the non-completion of the transaction is not caused by any “fault” on the part of the purchaser.

23. In his submissions, Mr Woo very fairly made a concession that, as long as the dispute between the parties over title was genuine and the parties in the end reached a compromise and entered into an agreement cancelling the transaction, then, in determining whether Section 2 applied and whether the purchaser was “at fault”, the court did not have to consider whether the grounds put forward by the purchaser (or his solicitors) in support of the challenge to title were sound at law. Mr Woo conceded that, in such circumstances, the transaction fell through without “fault” on the part of the purchaser, and therefore Section 2 applied (subject to Section 3, see below).

24. Mr Woo conceded that, were this not the case, the court (probably the Small Claims Tribunal or the District Court, depending on the amount of commission in dispute) would be compelled by the provisions of Schedule 3 to the standard estate agency agreement to adjudge upon the issue of whether the vendor’s title to the property was good or whether the vendor had satisfactorily answered the requisitions on title before determining the purchaser’s liability to pay commission, even though the parties had already reached a compromise on those issues and cancelled the sale and purchase transaction.

25. I agree with Mr Woo’s submission that the standard estate agency agreement cannot possibly be intended to associate the question regarding payment of commission with what may well be highly complicated and technical problems of title or even to require the District Court or the Tribunal to deal with disputes over title which are normally entertained by the High Court, particularly where the parties have already reached a compromise on those disputes and cancelled the sale and purchase transaction.

26. Nevertheless, it is not difficult to discern a loophole in the provisions of Sections 1 and 2 of Schedule 3 which is unfair to the estate agent. That loophole is: notwithstanding that an estate agent has performed his duty to assist the purchaser and the vendor in entering into a binding agreement for sale and purchase of the subject property, the purchase may still exonerate himself from liability to pay commission to the agent under Section 2 where the parties cancel the sale and purchase transaction for personal or particular reasons. This is hardly fair to the agent.

Schedule 3 Section 3

27. For this reason, Section 3 makes further provisions regarding cancellation of a property transaction by agreement between the parties. As stated above, Section 3 prevails over Section 2.

28. I notice that Schedule 3 Section 2 refers to the “completion of the property transaction [between the parties] [falling] through”. This covers a myriad of scenarios such as repudiation of the sale and purchase agreement by either party, or the subsequent cancellation of the transaction by agreement between the parties. Schedule 3 Section 3, on the other hand, specifically addresses the case of “mutual cancellation” by the parties of a binding agreement for sale and purchase that they have entered into. Section 2 deals with the non-completion of the transaction, whereas Section 3 only deals with mutual cancellation of a sale and purchase agreement, as a result of which the transaction falls through.

29. Schedule 3 Section 3 provides that the purchaser is liable to pay to the agent commission in the case of “mutual cancellation of a binding agreement for sale and purchase of the property concerned not arising from any provisions of the agreement for sale and purchase”. In other words, if the cancellation of the sale and purchase agreement of the subject property “arises from” any provision of that agreement, then Section 3 does not apply and the purchaser’s liability to pay commission will entirely depend on Sections 1 and 2.

“Arising from”

30. Under what circumstances is an agreement for sale and purchase of property mutually cancelled “arising from” the provisions of that agreement? The English version of the standard agency agreement immensely assists in the proper interpretation of “arising from”. It is in my view not difficult to understand the meaning of this term by reference to the wordings of the Chinese and English versions of the standard agreement.

Which agreement is being cancelled?

31. Which agreement is being cancelled? It is the usual conveyancing practice in Hong Kong that a binding sale and purchase agreement entered into by a purchaser (or a vendor) with the assistance of an estate agent (the duty of an agent under Schedule 2 Section (d)) is commonly known as a “provisional sale and purchase agreement”. The provisional sale and purchase agreement usually provides that the parties will, through their solicitors, execute a “formal sale and purchase agreement” within a specified period of time. Generally speaking, the formal sale and purchase agreement will provide for it to replace the provisional agreement and become the document which governs the rights and duties of the parties to the property transaction. The formal agreement will also provide that the parties are to complete the transaction by executing a deed on the date of completion. Sometimes the parties may, for certain reasons, refuse or not be able to execute the formal sale and purchase agreement. In that case, the provisional agreement will remain valid until the transaction is completed in accordance with that agreement.

32. In the above circumstances, at any time prior to completion of the property transaction, the parties thereto may, for whatever reason, mutually rescind the sale and purchase agreement then applicable so as to cancel the transaction. Where the parties agree to mutually cancel the transaction without having entered into or in the absence of a formal sale and purchase agreement, it must be the provisional sale and purchase agreement which is being rescinded; where, on the other hand, the parties agree to mutually cancel the transaction after they have entered into a formal sale and purchase agreement (which replaces the provisional sale and purchase agreement), it is naturally the transaction as stipulated in the formal agreement which is being cancelled.

33. I notice that Schedule 3 Section 3 uses the words “agreement for sale and purchase of the property concerned” and “a binding agreement for sale and purchase”. At first sight, these words appear to be the same as or similar to the “binding agreement for sale and purchase” in Schedule 2 paragraph (d) regarding an agent’s duties and the “binding agreement for sale and purchase” in Schedule 3 Section 1. However, having carefully studied the contents and intent of the words and the words used in the Chinese and English versions of the agreement, I am of the view that the “binding agreement for sale and purchase” which is subject to mutual cancellation under Schedule 3 Section 3 does not necessarily only encompass the sale and purchase agreement under Schedule 2 paragraph (d) or the sale and purchase agreement referred to in Schedule 3 Section 1 (i.e. the provisional sale and purchase agreement that the parties enter into with the assistance of the agent), but may also mean the formal sale and purchase agreement executed pursuant to the provisional sale and purchase agreement.

34. In this respect, I notice in particular that the English version of Schedule 3 Section 3 provides for the “mutual cancellation of a binding agreement for sale and purchase of the property concerned”. The use of the word “a” indicates that the agreement being cancelled does not specifically refer to any of the binding sale and purchase agreements. The term may refer to the provisional sale and purchase agreement or the subsequent formal sale and purchase agreement which is executed for the purpose of replacing the provisional agreement. In this connection, I do not accept Mr Woo’s submissions to the contrary.

What does “provisions” mean?

35. The next question is: what amounts to mutual cancellation of a sale and purchase agreement “arising from” the “provisions” of that agreement?

36. In Mr Woo’s submission, “provisions” are not equivalent to “terms” and hence do not cover any implied term and merely cover express contractual terms. This submission was made because, in Mr Woo’s view, Section 3 referred to the mutual cancellation of a provisional sale and purchase agreement arising from the express provisions of that agreement. Mr Woo submitted that, as the provisional sale and purchase agreement did not contain any express provisions regarding doubts about good title or requisitions on title, the compromise and mutual cancellation of the transaction for reasons in that respect fell squarely within the requirement in Schedule 3 Section 3 that the mutual cancellation of the transaction was “not arising from any provisions of [the provisional sale and purchase agreement]”, and hence Section 3 applied in the present case and the purchaser was accordingly liable to pay commission.

37. As stated above, I do not accept the basic premise of Mr Woo’s submission. In my judgment, where the parties, having entered into a formal sale and purchase agreement, cancel the sale and purchase transaction by agreement, then under Section 3, the purchaser’s liability to pay commission is to be determined by considering whether there has been mutual cancellation of the formal agreement arising from the provisions of that agreement.

38. This being the case, as explained below, it is not necessary for me to adjudge upon Mr Woo’s submission regarding the meaning of “provisions”, particularly in view of the fact that one of the parties hereto is not legally represented.

Cancellation of the formal sale and purchase agreement “arising from” the “provisions” of “that” agreement

39. Was the mutual cancellation of the formal sale and purchase agreement by the parties thereto “arising from” the provisions of that agreement? In his submissions, Mr Woo conceded that, as long as the relevant agreement provided that the vendor had to prove good title and satisfactorily answer requisitions on title, then if a dispute arose between the parties as to title or whether the answers to requisitions on title were satisfactory, and a compromise was subsequently reached and the relevant sale and purchase agreement was rescinded and the transaction cancelled by mutual agreement, this would constitute cancellation of the relevant agreement “arising from” the provisions of that agreement. The concession was in my view reasonable. That would of course only apply where there was a genuine dispute as to title.

40. In the present case, as the Presiding Officer concluded, the purchaser and the vendor entered into a provisional sale and purchase agreement and then, pursuant to the provisions of that agreement, proceeded to execute a formal sale and purchase agreement. Although the purchaser had not adduced the formal sale and purchase agreement as evidence, the Presiding Officer made an inference based on common sense and found as a fact that the formal sale and purchase agreement “must have contained the basic provision requiring the vendor to prove good title” (paragraph 19 of the Reasons for Decision). At the hearing of the appeal, Mr Woo very fairly conceded that the inference made by the Presiding Officer was entirely correct as a matter of ordinary sale and purchase practice and common sense, and he did not mount any challenge on behalf of the Claimant to the finding of fact made by the Presiding Officer.

41. This being the case, the mutual cancellation of the formal sale and purchase agreement by the parties was, in my judgment, “arising from” the “provisions” of that agreement, and therefore Section 3 did not apply. In other words, there did not exist the circumstances under Section 3 which gave rise to liability on the part of the purchaser to pay to the agent commission notwithstanding cancellation of the agreement. It follows that the scenario under Section 2 which exempted the purchaser from liability to pay commission still existed, and hence Section 2 applied. In other words, the provision of Section 1 which required the purchaser to pay commission did not apply. As a result, the purchaser is not liable to pay commission to the estate agent.

Conclusion on the appeal regarding commission

42. In short, the Claimant’s appeal regarding liability to pay commission is dismissed.

Appeal on costs

43. The remaining appeal concerns an order made the Presiding Officer following judgment against the Claimant. By that order, the Claimant was required to pay to the Defendant a sum of $9,000 which was part of the Defendant’s costs. This sum of money relates to the fees of a witness. One Mr Lai, a solicitor who acted for the Defendant in the property transaction in question, was called by the Defendant upon the request of the Presiding Officer and testified in the Tribunal on the dispute between the parties over title. The figure of $9,000 was derived by multiplying Mr Lai’s hourly charging rate of $3,000 by 3 hours being the time he had spent in attending trial.

44. Mr Woo submitted that Mr Lai should not have been called to give evidence at all because his evidence was wholly irrelevant to the issues in the present case. I do not accept this submission. As stated above, it was upon the request of the Presiding Officer that the Defendant called Mr Lai to give evidence. At trial the Presiding Officer was under the duty to investigate the case, and the request he made to the Defendant had an extremely significant effect on the latter. It was perfectly reasonable for the Defendant to accede to the request and call a witness to testify at trial. And in my view, at the very least, Mr Lai’s evidence was directly relevant to the question of whether the dispute between the parties over title was genuine or was nothing more than a sham.

45. In my view, in exercising his discretion on costs, the Presiding Officer was fully entitled to order the Claimant to bear the costs of Mr Lai as a witness who gave evidence at trial.

46. On the other hand, as far as the amount of witness fee is concerned, I agree with Mr Woo’s submission that the Presiding Officer erred in his calculations. He should have assessed “any reasonable sum paid [by the Defendant] to [the] witness for expenses necessarily incurred and any loss of salary or wages suffered by him in attending the hearing” in accordance with section 24(1)(b) of the Small Claims Tribunal Ordinance (Cap. 338 of the Laws of Hong Kong) and should not have arrived at the figure of $9,000 by taking Mr Lai’s normal charging rate as a solicitor (i.e. $3,000 per hour) and the time he had spent in attending trial. See pages 8 to 9 of the Judgment of Deputy Judge Tong (as he then was) on 26 August 2000 in Real Honour Limited v. Gamuse Company Limited HCSA 29/1999. The Presiding Officer should have assessed, on the available evidence, the sum paid by the Defendant to Mr Lai for expenses actually incurred and loss of salary or wages suffered by him in attending trial, and then ordered that the Claimant was to pay that sum to the Defendant as costs.

Conclusion on the appeal regarding costs

47. This being the case, the Claimant’s appeal against that part of the costs order (the witness fee of $9,000) is to be allowed.

Orders

48. In short, I allow the Claimant’s appeal against the witness fee of $9,000 being part of the costs order made by the Presiding Officer. The issue regarding that particular fee is to be remitted to the Tribunal for re-assessment by the same Presiding Officer. The Claimant’s appeal against the remaining parts of the order of the Presiding Officer is dismissed.

49. Regarding the dispute over the amount of the witness fee, if the amount of that fee is agreed, there is no need for a re-trial.

50. As for the costs of this appeal, the Claimant’s appeal as a whole fails. I make an order nisi that the Claimant is to pay to the Defendant 95% of the costs of this appeal, to be taxed by a Master is not agreed. Unless the parties hereto apply to vary the order nisi within 14 days of the delivery of this judgment, the order nisi will become absolute upon the expiry of 14 days.