CHUN SUE KWAN v. SKY HARVEST LTD AND ANOTHER

CACV 174/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 174 OF 2007

(ON APPEAL FROM DCCJ NO. 6027 OF 2004)

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REASONS FOR JUDGMENT

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Hon Lam J (giving the judgment of the court):

1.  The only issue in this appeal is whether the estate agent had ostensible authority to make a representation on behalf of a landlord in respect of the toilet facility of a commercial unit when she showed the premises to an intended tenant.

2.  At the court below, Judge Lok found for the tenant (the 1^st Defendant).  As a result, the claim of the landlady (the Plaintiff) was dismissed and she was held liable to the counterclaim of the tenant.  This is the appeal of the landlady. 

3.  The background facts can briefly be stated.  After her previous tenant moved out in April 2004, the landlady initially engaged an agent called Mr Fung to lease out her commercial unit at Flat E, Ground Floor, On Lee Building, Nos.41-53 Fung Tak Road [“the Unit”].  Mr Fung subsequently introduced her to another agent, a Madam Ching of Chun Fung Realty Agency.  The keys of the Unit were given to Madam Ching through Mr Fung. 

4.  The tenant needed a premises to operate a clinic and Madam Ching introduced the Unit to it.  On 5 May 2004, Madam Ching showed the Unit to the director of the tenant, Madam Liu and her husband Dr Huang (the 2^nd Defendant). 

5.  The learned judge accepted the tenant’s account of what happened at the inspection and in this appeal Mr Chan does not seek to challenge the judge’s findings in this respect.  Such findings can be taken from paragraph 7 of the judgment below,

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As the availability of toilet facility was crucial to the operation of the clinic, Madam Liu asked Madam Ching whether such facility was available.  Madam Ching then brought her to a room in the common part of the Building.  The room was locked by that time, but Madam Ching told her that the room was a toilet for use by the tenants in the Building, and the landlord would give her the key in the case that she decided to take up the tenancy.”

6.  Afterwards, the parties signed a provisional tenancy agreement on 6 May 2004, followed by a formal agreement on 10 May 2004.  Madam Liu’s evidence, accepted by the learned judge, was that at the time of the signing of the formal agreement, the tenant had demanded the key of the toilet from a male representative of the landlady and she was told that the key would be given later.  Then, on 13 May 2004, Madam Liu met the landlady in person at the Unit and again she asked for the toilet key.  The landlady took Madam Liu to the management office to get the key but the management staff told them to come back later as he had no instruction from his superior. 

7.  The tenant continued to chase for the toilet key and eventually the landlady told Madam Liu that the toilet was out of operation and there was no plan to repair the same.  The landlady told the tenant to use the public toilet in a park over 10 minutes’ walk from the Unit or alternatively the toilet in a restaurant on the 1^st Floor of the same building. 

8.  The proposal of the landlady was not acceptable to the tenant.  The tenant stopped paying rent as from 13 September 2004.  On 6 November 2004, solicitors for the tenant wrote to the landlady to rescind the tenancy agreement on the ground of misrepresentation. 

9.  The learned judge found that Madam Ching had the ostensible authority to make the representation to the tenant regarding the use of the toilet facility at the time of inspection and that the representation was false.  Since the representation was material and was relied upon by the tenant in entering into the tenancy agreement, the learned judge held that the tenant was entitled to rescind.

10.  On appeal, Mr Chan contended on behalf of the landlady that the judge was wrong in his conclusion on ostensible authority.  Counsel submitted that in view of the following primary findings, the judge should conclude that Madam Ching had no ostensible authority to make the representation for the landlady,

(a)	It was the 1st Defendant who approach Madam Ching for introduction and viewing of the Unit;
(b)	The misrepresentation was made by Madam Ching in the absence of the landlady;
(c)	The landlady had only given the keys of the Unit to Mr Fung, not Madam Ching;
(d)	It was only after her ‘first contact’ with Madam Ching did the landlady come to know that Mr Fung asked Madam Ching to assist the landlady to rent out the Unit;
(e)	Prior to the ‘first contact’ with Madam Ching, the landlady was not aware of the viewing on 5 May 2004;
(f)	The ‘first contact’ must be after the inspection on 5 May 2004, viz. after the making of the representation.

11.  With respect, the so-called ‘first contact’ argument is a completely false point.  On the pleadings, it is simply not open to the landlady to contend that Madam Ching only became her agent after the making of the representation.  Paragraph 18 of the Re-amended Defence pleaded that Madam Ching was the agent of the landlady when the tenant met her on 5 May 2004.  In reply, paragraph 4 of the Re-amended Reply pleaded that the landlady appointed Madam Ching to let to let the Unit “in or about April 2004”.

12.  Then in her witness statement of 28 April 2006, the landlady referred to the engagement of Madam Ching and the progress of the leasing of the Unit thereafter.  Reading paragraphs 2 and 3 of her witness statement in sequence, it was quite obvious that she was saying that she engaged Madam Ching first and it was later on she learnt about the tenant’s interest in the Unit from Madam Ching.

13.  Thus, when the landlady gave evidence at the trial that she was not privy to the engagement of Madam Ching until the latter called her about the interest of the tenant in early May, counsel for the tenant took an objection based on the pleadings (see Bundle C p.284-288).  Counsel for the landlady then intimated to the court that he would not depart from the pleadings (see p.286 F to L).

14.  Against such background, the reference to the ‘first contact’ in the judgment was obviously referring to the first physical face to face contact between the landlady and Madam Ching.  However, it would be wrong to read that as the correct point of reference in terms of the landlady’s engagement of Madam Ching as her agent.  She was bound by her pleadings and the consequence is that irrespective of the timing of her first physical contact with Madam Ching and her knowledge of passing of the keys from Mr Fung to Madam Ching, she must for the purposes of this action be regarded as having engaged Madam Ching by the time of the first inspection.

15.  We do not find the other matters relied on by Mr Chan to be of significance in deciding the key issue in this appeal.  We certainly do not agree that those other matters pointed inevitably to the conclusion that Madam Ching could not have been acting as the agent of the landlady in making the representations.

16.  As the learned judge rightly pointed out, whether the agent had ostensible authority to make the representation on behalf of the landlady has to be determined with reference to the facts of the case.  The learned judge also correctly directed himself with regard to the authorities.  In particular, we agree with his observation at paragraph 19(iv) of the judgment,

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In considering the capacity of the estate agent, one has to consider its role at different stages of the negotiation leading to 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.”

17.  Further, it is not essential that the principal must have knowledge of the acts of the agent in order to cloak the latter with ostensible authority.  In many instances of ostensible authority, a principal is held to be bound by acts of the agent that he had no knowledge whatsoever.

18.  We believe the classic statement of the law on ostensible authority is to be found in the judgment of Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties [1964] 2 QB 480 at p.503,

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An ‘apparent’ or ‘ostensible’ authority … is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the ‘apparent’ authority, so as to render the principal liable to perform any obligations imposed upon him by such contract.”

And at p.503-4,

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The representation which creates ‘apparent’ authority may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal’s business with other person.  By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal’s business has usually ‘actual’ authority to enter into.”

19.  In the present context, we also find the following observation by Dixon, Evatt and McTiernan JJ in the High Court of Australia in Australasian Brokerage Ltd v Australian and New Zealand Banking Corporation (1934) 52 CLR 430 at p.450-1 pertinent,

“	The scope of the authority is determined by the nature of the duty entrusted to the agent.”

20.  What was the duty entrusted by the landlady to Madam Ching? By leaving the keys with the agent, the landlady plainly entrusted her with the task of showing the leased property to potential tenants.

21.  What representation was made by landlady to the tenant in permitting Madam Ching to conduct the viewing of the Unit with interested potential tenant? In our judgment, bearing in mind the following matters, the landlady must be taken to have represented to all potential tenants that the agent had authority to show them not only the Unit itself but also all facilities essential to the normal use of the Unit, including toilet facilities, 

(a)	The subject property was a commercial unit and by current standard in Hong Kong toilet facilities must be regarded as essential for the normal use of a commercial unit;
(b)	It should be within the reasonable contemplation of a landlord of a commercial unit that a potential tenant would ask to be shown not only the leased unit but also all facilities essential to the normal use of the same;
(c)	There was no indication whatsoever at the Unit that it was not served by any toilet facilities.

22.  We are therefore of the view that the learned judge was correct in holding that the representation was made by Madam Ching with ostensible authority.

23.  The appeal was therefore dismissed with an order that the landlady plaintiff shall pay the defendants’ costs of the appeal.