RICHARD ELLIS LTD v. VAN HONG TUON

NO. 76 of 1987
(Civil)

Headnote

An Estate Agent cannot act for two principals with conflicting interests e.g. both the vendor and potential purchaser, without the explicit informed consent of both.

IN THE COURT OF APPEAL

No. 75 of 1987
(Civil)

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JUDGMENT

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Hunter, J.A.:

1. This is an appeal from a decision of His Honour Judge Henry Wong given in the District Court on 2nd May of this year. He gave judgment for the plaintiff estate agency on a claim for commission of a sale of a flat on the 9th floor of Villa Monte Rosa, 41A. Stubbs Road, to the defendant. It is important to notice from the outset that this was a claim by an agent for commission against a purchaser.

2. The facts as found by Judge can be summarised as follows. In June 1985 the then owner of the flat Mr. Chung was contemplating emigration, and wanted to effect a very quick sale of the flat. His asking price apparently was $3.2 million. He invited the plaintiffs to act for him on the sale, and they agreed to do so at a commission of ½% of the purchase price. Pursuant to those instructions, on Thursday, 6th-June the plaintiffs caused an advertisement to be placed in the South China Morning Post advertising a flat in "upper Stubbs Roan" without further description, at a price of $3.1 million. The defendant and his wife were in fact interested in acquiring a flat in Villa Monte Rosa. The defendant's wife then rang the plaintiffs to enquire of the location of this flat. She spoke to a Mr. Wu. When she learned that it was in this particular block an appointment was arranged to inspect the flat. This inspection took place at 4 o'clock that afternoon.

3. In the course of his judgment the trial judge made no specific finding as to whether in the course of that telephone conversation the defendant's wife did no more than answer an advertisement which would be consistent with her dealing with the plaintiff as the vendor's agent; or whether she went further and gave separate instructions to the plaintiff to act for the defendant and her in the purchase of this or any flat. This is an issue which it is unnecessary now, as I see it, for this court to resolve.

4. At 4 o'clock that afternoon there was a meeting at the flat attended by Mr. Wu, the plaintiff's representative, the defendant and his wife. Mr. Wu then handed the defendant a document known as a property listing. This gave very brief particulars of the flat, and ended with a somewhat cryptic line “agency fee: 1% of sale price”. It did not say in terms who was to pay that sum. But Mr. Wu said that the defendant himself asked him whether the purchaser should pay that sum, and the answer was “yes, purchasers usually do”. The defendant and his wife wanted time to consider the matter and they in fact arranged to come back to the flat on the next day, Friday. That visit took place on Friday afternoon. It appears that in the course of it they learned either directly from the owner or from Mr. Wu that the owner was prepared to accept $3 rnillion for the flat, but he wanted a very quick answer. This the defendant was then unwilling to give.

5. Mr. Wu said that on that occasion the defendant's wife put a question to the effect “don’t vendors pay commission on these occasions” to which Mr. Wu answered with words to the effect “no purchasers should pay”. Indeed Mr. Wu made it clear in his evidence that his simple approach was that purchasers were liable to pay his firm’s commission.

6. On 8th June, Saturday morning, there was much activity. The defendant put in a bid for $3 million to the plaintiff. He then learned that there were two bids apparently of the same sum outstanding, and that the vendor was prepared to accept the bid from the first person who was prepared to put up a 20% deposit. The defendant was prepared to do this, and wrote a letter to this effect to Mrs. Howell; Mr. Wu's superior in the plaintiff's firm. She at about the same time sent a letter to him which confirmed the purchase "subject to contract"; and also confirmed that their fee 1% would be payable on the signing of the sale and purchase agreement. That letter was not signed and returned by the defendant. On Monday, 10^th, shortly after lunch, the contract of sale and purchase was signed. Later the plaintiff submitted a bill "for introducing the property and negotiating the terms"; a bill for 1% of the purchase price i.e. $30,000. The sum was not paid and proceedings were eventually commenced.

7. By their Particualrs of Claim in the action, the plaintiff asserted oral instructions from the defendant for it to act on the purchase of a flat, and an oral agreement to pay 1% of the purchase price. That oral agreement was later particularised as having been made on the first visit between Mr. Wu and the defendant personally.

8. By his Defence the defendant denied that he entered into any such contract with the plaintiff and specifically asserted that the plaintiff had acted throughout only as agent for the vendor. By their Reply the plaintiff denied it acted only as agent for the vendor, and repeated by way of particulars; first an allegation that the defendant's wife gave it instructions to act for the defendant en the telephone on the 6^th; and secondly they pleaded the handing over of the listing on the occasion of the visit that afternoon.

9. In the course of his evidence in the court below Wu admitted that there had in fact been no such oral agreement. The reason was that in his view no oral agreement was necessary. He simply took the line that in this sort of circumstance a purchaser was liable. But unfortunately no attempt was made at any stage of the trial below to amend the pleadings, and it was concluded upon the original pleadings which I have summarised.

10. In the course of his judgment the learned judge said this:

“The defendant and his wife well knew, right from the beginning, that the responsibility for plaintiff's 1% agency fee on the sale of price of the suit premises should fall on the buyer. .….. I take judicial notice that it is normally the local practice that purchasers should pay agency fee, regardless of whether or not the vendors or landlords also pay such fee to the same agents.”

And later he said this:

"I also believe that defendant and his wife at first knew but did not bother themselves to expressly agree or disagree to be liable to plaintiff for agency fee because of the uncertainty of a successful deal. Subsequently, they had, by conduct; availed themselves of plaintiff's facilities concerning inspection of the flat and fruitful negotiation with the seller and should therefore be deemed to have tacitly agreed and to be bound to pay for plaintiff's service."

11. In these passages the judge was coming very close to sharing Mr. Wu's view. He plainly accepted that it was a local practice, and a proper local practice, for purchasers as a rule to pay agent’s commission. He was critical of the defendant for trying to avoid the consequences or this practice. This is a view which seems to me to have coloured his approach to the whole case.

12. Unfortunately no one in the course of the case put before the judge those authorities which bear upon the obligations, of a person like an estate agent, who seeks to represent conflicting interests. It is convenient to take as ones starting point on the law, Article 46 in the Fifteenth Edition of Bowstead on Agency which reads:

"No agent may enter into any transaction in which his personal interest might conflict with his duty to his principal, unless the principal, with full knowledge of all the material circumstances and of the exact nature and extent of the agent's interest, consents."

That is the basic premise, which has been very clearly and firmly established for many years. One has only to look at the decision in Parker v. McKenna(1) where there are two off-quoted passages in the judgments. First Lord Cairns, L.C. at p.118:

“Now, the rule of this Court, as I understand it, as to agents, is not a technical or arbitrary rule. It is a rule founded upon the highest and truest principles of morality. No man can in this Court, acting as an agent, be allowed to put himself into a position in which his interest and his duty will be in conflict.”

Even blunter was Sir William James, L.J.:

“It appears to me very important that we should concur in laying down again and again the general principle that in this Court no agent in the course of his agency, in the matter of his agency, can be allowed to make any profit without the knowledge and consent of his principal; that that rule is an inflexible rule, and must be applied inexorably by this Court, which is not entitled, in my judgment, to receive evidence, or suggestion, or argument as to whether the principal did or did not suffer any injury in fact by reason of the dealing of the agent; for the safety of mankind requires that no agent shall be able to put his principal to the danger of such an inquiry as that.”

The application of this general rule to estate agency in particular was considered on three occasions in the course of a few years by the Court of Appeal in England. The first case was Keppel v. Wheeler(2): the second Fullwood v. Hurley(3): the third Harrods Ltd. v. Lemon(4).

13. Of these authorities it is Fullwood v. Hurley⁽³⁾ which is substantially the most significant, because the facts there were strikingly similar to the facts in this case.

14. What happened there was that the plaintiff agency had instructions from the owner of an hotel to put it on the market. They accepted instructions from that lady vendor at a commission. In the events that happened, this commission was paid by her.

15. In the course of their attempts to find a buyer they gave particulars and an Order to View to the defendant. Later they wrote to him a letter which included this phrase

“if business is done we shall act for you at the usual brokerage.”

The County Court Judge held the defendant liable for commission on the basis that he had received this letter, accepted the plaintiff’s services and benefited from them. This was very similar to the approach of the trial judge here.

16. The Court of Appeal, upholding the Divisional Court, were unanimously of the view that the plaintiff had failed to prove his case. Lord Hanworth M.R. summarized his judgment in this way at p.502:-

"It cannot be stated too plainly that an agent must not accept commissions from both sides, that if there are two commissions that are to be received it must be on the basis of the actual work being done for both parties with the assent of both parties after full knowledge. If such knowledge is afforded and it is made plain what position the agent occupies, then it is possible for the agent to act between the parties, but if and so long as the agent is the agent of one party, he cannot engage to become the agent of another principal without the leave of the first principal with whom he has originally established his agency."

He pointed out that such leave would need "strong and evidence from the first principal, the lady vendor in that case.

17. Scrutton L.J. on the same page In a much quoted observation said this:-

"No agent who has accepted an employment from one principal can in law accept an engagement inconsistent with his duty to the first principal from a second principal, unless he makes the fullest disclosure to each principal of his interest, and obtains the consent of each principal to the double employment."

Both Scrutton L.J. and the third member of the Court Sargant L.J. condemned an attempt by an agent to bargain with his potential purchaser by demanding a promise of commission from him as a condition for receiving an Order to View. Such conduct was described by Sargant L.J. at p.505 as being "a flagrant violation of his duty to the vendor".

18. Those principles came before the court again in 1970, in the context of Lloyds insurance Brokers. They acted for the insured at the time the policy was placed, but had developed a practice of purporting to act for both the insured and underwriters in the event of a claim arising, particularly in dealing with the investigation of the circumstances of the claim by assessors.

19. This matter was considered by Megaw J. in Anglo-African Merchants Ltd. v. Bayley(5) and was roundly condemned by him

“In the absence of express and fully informed consent” p.323

In respect or the alleged defence of custom and practice he said this:

"A custom will not be upheld by the courts of this country if it contradicts the vital principle that an agent may not at the same time serve two masters - two principals - in actual or potential opposition to one another: unless, indeed, he has the explicit, informed, consent of both principals." p.323

20. Notwithstanding these criticisms Lloyds did nothing about altering its practice. The matter then came before Donaldson J. (as he then was) in North & South Trust Co. v. Berkeley(6). He was equally critical of the same practice and applied exactly the same principles of law. If anyone is in any doubt as to the problems which arise from attempting to act in some dual capacity in this way in respect of confidential information, and confidential documents, I suggest he reads pps. 990 and 991 of Donaldson J.’s judgment.

21. The whole matter is sec out in the commentary in Bowstead under Article 50 at p.188 in these terms:

“Agent acting for both parties. A corollary of the rule that an agent may in no circumstances receive a secret commission is that he may not act for both parties to a transaction unless he ensures that he fully discloses all the material facts to both parties and obtains their informed consent to his so acting.”

Illustrations are then given from the authorities including those to which I have just referred. It goes on:

“Any custom to the contrary will not be upheld. It is not material that the agent is acting gratuitously for one or both parties: the mere fact of being agent for two or more parties who may have adverse interests is improper, unless all principals have given their informed consent.”

22. I have cited extensively from authority because this rule seems to have been one which has been overlooked for some period of time in this territory. Those citations demonstrate that the law on this subject matter is old, clear and very well settled.

23. Had those authorities been brought to the notice of the trial judge it seems to me that he must have dismissed the claim. First there was no evidence of any disclosure at all to the vendor or that he gave any sort of consent explicit, informed or otherwise to the plaintiff acting for both parties.

24. Secondly there was no disclosure to the defendant, and the consent as so found by the trial judge was not explicit and informed but implied and uninstructed as far as this matter was concerned. I can see no answer to the proposition that had the authorities been brought to the judge's attention he must have dismissed the claim. Hence it is not entirely surprising that the defendant comes to this court and invites it to reach that conclusion.

25. The main objection raised to this with considerable skill and vigour by Mr. Rodway for the plaintiff, is that the point is not open at all in this court. In support of that he has advanced two propositions. First he accepts the authority of Fullwood⁽³⁾ and that this places a legal onus on the plaintiff. But he seeks to draw a distinction between the legal onus and the evidential burden. He submits that the evidential burden has to be triggered by the pleadings and particularly by a plea by the defendants of breach of fiduciary duty. There was no such plea here. So the parties must be deemed to have admitted performance by the plaintiff of this duty of disclosure. Therefore a failure which plainly sterns from ignorance has this wholly fictional and somewhat surprising result.

26. The second proposition follows from the first. In consequence of it, Mr. Rodway submits that the defendant is caught by what I might describe as the New Point rule of practice, which is referred to in Note 59/10/6 of the White Book and in the authorities there collected.

27. By reason of the lack of pleading, the argument goes, the defendant is responsible for the lack of evidence in the court below. Since the point turns on evidence, and there was no evidence in the court below, then we should not permit the defendant here to raise the point at all. I cannot for my part accept either proposition.

28. In relation to the first, pleadings reflect legal burdens, prima facie they do not alter them. An agent who is contractually bound to one principal has to show performance of his Fullwood duty before he “engages” or enters into the second contract. Such proof is essential to the legal validity of the contract. It cannot be downgraded into a condition precedent within the meaning of Order 18 Rule 7(4). The plaintiff has to show that he has performed his fiduciary duty. There is no onus on a defendant, who knows nothing whatever of the true facts, to plead or prove breach of fiduciary duty.

29. Here the defendant's denial of the contract of agency was in my view sufficient to trigger the onus upon the plaintiff. The actual plea of agency for the vendor was more than sufficient. The failure of plead1ng was then by the plaintiff to confess and avoid, and assert specific proof of his Fullwood duty. On the pleadings therefore as they stood, it was necessary for the plaintiff to prove the performance of this duty. The plaintiff, on the evidence plainly failed to appreciate the duty, and wholly failed to lead the necessary evidence.

30. In relation to the second proposition, a probable high water mark of the strict view on the New Point practice is the dissenting speech of Lord Finlay, L.C. in Banbury v Bank of Montreal.(7) In that speech he makes it clear that in his opinion the fair trial of jury actions required consistency, and if a party deliberately (his phrase is "deliberately did not put forward a point") in that sense of the word, conducted the trial in a part1cular way, which was manifested by the questions he left to the jury, he would not be allowed to change direction in an appellate court.

31. The majority did not take such a strict view and thought the matter was one of discretion. Upon my reading of Lord Finlayls speech, particularly at pp.661-2, I do not think that he would have held the rule applicable to a clear failure to lay the proper authorities before the judge on the only point of issue in the case, which stemmed from ignorance as opposed to some deliberate choice.

32. In my judgment, therefore, this court not only can but must intervene and apply the true principles of law. Any amendment in the circumstances would be futile. In my judgment this appeal should be allowed.

Silke, V.-P.:

33. I am of the same opinion.

34. My lord Hunter set out the facts and the law so fully and succinctly that it is unnecessary for me to reiterate.

35. The plaintiffs/respondents specifically pleaded an oral agreement. Of this there was no direct evidence, but evidence was led to show an implied contract, its existence evidenced by conduct.

36. The defendant/appellant specifically averred, in the course of its denial that any contract as pleaded existed, that the plaintiff was the agent for the vendor. In their reply the plaintiffs averred that they were an agent out “not only for the vendor”.

37. Double agency emerges from the pleadings and was sustained by the evidence. The plaintiffs were, according to their witness, to be paid a commission from both the vendor and the purchaser. This cast on them a duty, and I emphasise that word, the Fullwood's⁽³⁾ duty to inform the court that all the requirements therein set out as the pre-requisite to their ability to contract in the terms they alleged had been fulfilled. This was entirely overlooked in the court below, and indeed incidences of the duty seem never to have entered the mind of Mr. Wu, the plaintiff's employee directly concerned in the sale and purchase.

38. Mr. Rodway would have it that Mr. Allman-Brown's submissions constituted a new point. With respect on the pleadings and the evidence it cannot be. In my view it is not required to aver in the pleading that the double agent had done everything that is necessary to allow him to succeed in claiming a commission or reward from his clients. It is necessary to his success that he shows himself to have acted within the terms of his duty, leading evidence to that effect, whether or not the other side take the point.

39. Mr. Rodway further asked us to permit him now to amend his pleadings to conform with the actual evidence led at the trial. That is an implied contract and acceptance by conduct. Without it is being necessary to consider the merits of such an application this late in the day, in my judgment to permit him to do so would serve no usefull purpose, as he is still thrown back on the failure to prove that the plaintiffs fulfilled the strict duty which lies upon a person acting as double agent. It is not a pleading which would give him success as the matter now stands.

40. There can be no question of a new trial to permit him to mend his fences for I do not think his horse to have ever jumped the fence which it must have done before it could have completed the course and won. I too would allow the appeal.

Barnes, J.:

41. I agree that the appeal should be allowed. The plaintiff clearly claimed that it was entitled to be paid a double commission. The evidence which the learned trial judge accepted did not establish that the type of contract in the terms required by Fullwood v. Hurley⁽³⁾ had been made between the plaintiff and the defendant that the defendant should pay the plaintiff a second commission.