CACV69/2000 CHESTERTON PETTY LTD. v. FRED GROENEVELD - LawHero
CACV69/2000
上訴法庭（民事）Rogers VP, Woo JA and Le Pichon JA30/10/2000
CACV69/2000
CACV 69/2000
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 69 OF 2000
(ON APPEAL FROM DCCJ 22979 OF 1998)
BETWEEN
CHESTERTON PETTY LIMITED Plaintiff
and
FRED GROENEVELD Defendant
Before: Hon Rogers VP, Woo JA and Le Pichon JA in Court
Date of Hearing: 19 October 2000
Date of Judgment: 31 October 2000
J U D G M E N T
Hon Rogers VP:
This is an appeal and cross appeal in an action by an estate agent to recover damages for breach of contract made by the defendant. The action was heard by Deputy Judge Lok sitting in the District Court. By judgment dated 17 January 2000, the Deputy Judge gave judgment in favour of the plaintiff for the sum of HK$56,508 plus interest. That sum was the equivalent of half a month's rental for the premises in question at the rate at which the premises were ultimately let.
The defendant appeals the judgment on the basis that the plaintiff is not entitled to any commission because there was a failure to make full disclosure of the fact that and circumstances in which the plaintiff would be acting as agent and receiving commission from both the landlord and the tenant. The plaintiff cross appeals that it should also be entitled to an award in respect of the loss of opportunity to earn a share in the commission earned by the landlord's agent.
The facts
Albeit there had been previous preliminary contact, as found by the judge, on 1 September 1998 the defendant had a telephone conversation with Ms Becky Chan, a manager in the plaintiff's employment, and told her that his company Euro Bag (Five Stars Collection) Limited was interested in leasing office premises in Tsimshatsui. It is clear that Ms Chan had faxed the defendant details of suitable properties on 1st September.
The defendant had said, when giving evidence, that he had seen an article relating to an office building at 26 Nathan Road in August, prior to receiving the details from the plaintiff. The copy of that newspaper article, which was produced at the trial by the defendant, was undated. When the defendant was shown that the article had in fact appeared in the South China Morning Post on 2 September the defendant conceded, in cross-examination, that he had only seen the article after he had received the listing details from the plaintiff.
On 8 September Ms Chan took the defendant to see an office on the 10th floor of that building. That was one of the premises listed in the information faxed on the 1st September. The asking price was $17 per square foot. The defendant wanted to make an offer of $11.5 per square foot. There is no dispute that on 8 September the defendant signed an agreement appointing the plaintiff as his agent to find premises. There was some dispute as to whether that was signed before or after the premises were inspected, but that seems to me to be irrelevant for the purposes of this case. The terms of the agreement are important. It is a short agreement. It is in both Chinese and English. For convenience, I set out the English terms.
"APPOINTMENT OF AGENT
I hereby agree to engage your service as my agent for assisting me to find premises in Hong Kong.
In consideration of your introduction of the premises listed hereunder, I agree to pay you the commission equivalent to 1% of the purchase price if I purchase, or 1/2 month's rental if I rent any of these premises.
I undertake that I will not approach the owners of these premises either directly or through other agents. I further agree to be bound by this agreement even if these premises are purchased or rented by my family members, nominees, principals or agents.
I am fully aware that you are also charging commission from owners of these premises and to this I have no objection.
I agree that this appointment will be binding for 3 months from today or for a period the court may deem reasonable if there is any dispute."
At the foot of the agreement was a handwritten note indicating that the premises were listed. There is no dispute that the Nathan Road premises which were visited fell within the agreement. One further matter is that the Defendant must have taken at least some degree of care in signing the agreement as he inserted his passport number.
The evidence was that on 9 September 1998 Ms Chan approached Mr Samson Heau of Jones Lang Wootton, who were the agents for the landlord of the property, and asked for the terms which would be offered by the landlord. There were subsequent discussions between them but the best that could be achieved was a rental of $17 per square foot with two months rent free. In her evidence Ms Chan said that by 22 September she realised that her recollection of events might be important for legal proceedings so she made a written record. That record headed "Action Taken" was produced at the trial. It shows that there was communication between Ms Chan and Mr Heau on 10 and 11 September and the best that Ms Chan could obtain for the defendant was 2 months rent free and a rent of $17. That was communicated to the defendant on 11 September.
Both the defendant and a Miss Li, a property agent with Centaline, gave evidence that through the introduction of a friend of the defendant, who worked for Centaline, the defendant was introduced to Miss Li. Unfortunately both the defendant and Miss Li were vague as to dates. However there was a copy of a letter signed by the defendant on his company notepaper, which was produced. That was dated 14 September. It was addressed to Centaline Property Agency Ltd. That letter read:
"Re=Confirmation of renting
10/F, 11/F or 12/F, 26 NatHan Road, Tsim Sha Tsui, Kowloon
We are pleaseD to inform you that we EurObag (Five Stars Collection) Ltd authoriZed centaline property agency limited miss cassandra Li on behalf of our comPany to confirm the renting agreement"
Ms Chan's note contains the reference that on 15 September the defendant had called her to tell her that headquarters in Europe had finally approved the leasing and he had asked her to provide an offer letter to be sent to headquarters. That seems to be confirmed by a statement in a fax which the defendant sent to the plaintiff on 21 September where it was said after the Defendant had been told that $17 was the best that could be obtained, he had requested Ms Chan "to make an official offer to me which I could show to my director in Holland."
On 15 September 1998 Ms Chan did send the defendant a fax setting out the terms of the proposed tenancy agreement which concluded with the clause:
"Agency commission:
The agency fee payable by yourself to Chesterton Petty Limited shall be the equivalent of half a month's rental stated in the Tenancy Agreement exclusive of all other outgoings. This fee is payable upon signing of an agreement to lease, Tenancy Agreement or upon possession whichever is the earlier.
(Please note that we reserve the right to charge the other party an agency fee also.)"
On the following day Ms Becky Chan sent a fax to Jones Lang Wootton (JLW) attention Mr Samson Heau in virtually identical terms save that the agency commission clause there read:
"The agency fee payable by yourself to Chesterton Petty Limited shall be the equivalent of 50% of total commission received from landlord, i.e. 37.5% of the monthly rental stated in the Tenancy Agreement exclusive of all other outgoings. This fee is payable on signing of an agreement to lease, tenancy agreement or upon possession whichever is the earlier.
(Please note that we reserve the right to charge the other party an agency fee also.)"
Ms Chan said in her evidence, supported by her note, that after she had faxed JLW on 16 September, the defendant called her and told her that headquarters considered the rent was too high and that as a result she contacted Mr. Heau and tried to see whether better terms could be obtained. She was challenged as to this but maintained her version of events. Perhaps the truth, here again, does not affect the result of the case.
The fact that the defendant had approached the landlord and JLW through another agent was communicated to the plaintiff by Mr. Heau. Apart from evidence of a telephone call made by Mr. Heau on 17 September, there was in evidence a fax JLW sent the plaintiff on 18 September.
Ms Chan's note indicates, as she confirmed in evidence, that she contacted the defendant on his mobile phone on Saturday morning the 19 September. The first call elicited the response that the defendant was still in bed. A short while later in the next call, Ms Chan reminded the defendant of the fact that he had agreed that the plaintiff would be the defendant's agent. The defendant was however, non-committal. Ms. Chan's reminder clearly was of no avail. There is a document dated 19 September in which the defendant, signing on behalf of Euro Bag, undertook to pay Centaline commission for the signing of the tenancy of the 10th floor.
It was not until 21 September that the defendant informed the plaintiff that he no longer wished it to act as his agent. The first fax that day was in the morning. It said precisely that. The second fax was sent in the afternoon. That contained the statement set out above. It went on to say that another agent had given the defendant a price of $16. But, in fact, as recorded by the Judge at page 10 of the judgment, all Miss Li could say was that she was prepared to negotiate for $16.
In his judgment the judge said at p.6:
"According to the evidence of the present case, it is not clear what was the agreement made between the Plaintiff and JLW relating to the payment of commission. Although Ms. Chan testified that there was an understanding between the said parties about the payment of commission, it is not known whether there was in fact such an agreement made between them. It was also quite possible that the Plaintiff had already disclosed all the interest in the transaction, as there was no agreement between the Plaintiff and JLW on the amount of commission when the Defendant signed the Agreement on 8th September 1998."
On that finding, as I see it, the judge came to the conclusion that there was no concluded agreement between the plaintiff and JLW as to the payment of commission by JLW to the plaintiff in the event that the premises would be let through the plaintiff. There may well have been an expectation on the part of both JLW and the plaintiff that 50% of the commission which would be received by JLW from the landlord would be paid to the plaintiff, but any such expectation would, in my view, not have matured into an agreement unless and until JLW had agreed to the terms of the fax of 16 September 1998. That they never did.
Mr. Cheng who appeared on behalf of the defendant sought to suggest that there must have been agreement between JLW and the plaintiff as to the payment of this commission and that that probably had taken place prior to 8 September 1998. In my view that is not borne out by the evidence and that was certainly not the finding of the judge below.
The double agency
The defendant seeks to avoid any liability under the agreement which he signed with the plaintiff on the basis that the plaintiff had not made full disclosure of all matters relating to the agreement which it had with JLW and the landlord. The defendant does not seek to demur from the fact that Clause 4 of the agreement, which I have set out above, acknowledges the fact that the plaintiff would be charging the owners of the property commission. But, it is said that that disclosure did not constitute the fullest disclosure because the amount of the commission and the circumstances of the negotiation and payment of the commission were not disclosed.
Reliance is made upon two cases in particular. The first is Fullwood v Hurley [1928] 1 KB 498 and the second Richard Ellis Ltd v Van Hong-tuon [1988] 1 HKLR 169. The basic proposition which is taken from those cases is that an agent must not act for nor accept commission from both sides and that if there are commissions to be accepted from both sides it must be on the basis that there is full knowledge and consent on the part of both principals. The point is perhaps encapsulated best in Scrutton LJ's judgment at p.503 where he said:
"… It (the order to view) does give the purchaser notice that there is some agreement or other between the vendor and the agent for commission, but that is not enough. It is not enough merely to give notice that there is a commission, leaving the purchaser to inquire what it is and how much. It is the agent's duty to make the fullest disclosure on his second contract of all the benefit he is getting out of it, and I think Mr. Emery agrees that there is nothing in the order to view by itself which imposed this liability on the purchaser."
Turning to the facts of this case, it appears to me that the defendant did make a contract with the plaintiff that the plaintiff would be the defendant's agent and that the defendant would not seek to use any other agent. By Clause 4, the defendant had given his consent to the possibility that the agent, the plaintiff, would obtain commission, directly or indirectly, from the landlord.
On the facts as found by the judge below, and indeed this seems to have ample support in the evidence, by 8 September when the plaintiff and defendant entered their agreement there was no agreement between JLW, or indeed the landlord, and the plaintiff for the payment of any commission. In those circumstances there is nothing further that could have been disclosed as of 8 September 1998.
Given the presence of Clause 4 in the agreement, the conclusion must be that, applying the strictest standards of full disclosure, the plaintiff would have been obliged to disclose to the defendant the amount of the commision once that had been agreed between the plaintiff and JLW, or possibly the landlord. That position had never arrived. It seems to me therefore that the finding of the judge below that there was no double agency is correct. It might be added, that if the defendant had refused to agree the amount of the commission to be obtained from JLW, the plaintiff would not have been able to obtain that. On the other hand, it does not seem to me that if the defendant refused to agree the amount of that commission it would debar the plaintiff recovering its normal commission from the defendant.
Indeed it seems to me that the plaintiff never was going to be an agent for the landlord in the strict sense of the term. There is no suggestion that the plaintiff would be doing anything on behalf of the landlord. The plaintiff was simply going to receive half JLW's commission.
There is no dispute that if the defendant was bound by the agreement with the plaintiff he was clearly in breach of Clause 3 of the agreement by approaching the other agent and eventually concluding a tenancy through that agency.
Cross Appeal
The plaintiff's cross appeal turns on the argument that by depriving the plaintiff of its position as agent for the defendant, the defendant deprived the plaintiff of the opportunity of earning a portion of JLW's commission as letting agent. Whilst that argument is attractive, it seems to me to fail for the simple reason that, despite the disclosure of the fact, in general terms, that the plaintiff would be seeking to be paid commission, which would come directly or indirectly, from the landlord, unless and until the defendant had given consent to the actual amount of the commission and had agreed the circumstance in which it would be payable, the plaintiff would not have been able to obtain any part of JLW's commission. The reality of the situation is that the Court can not be satisfied that the defendant's agreement would have been forthcoming. In those circumstances, it seems to me that the plaintiff is not entitled to recover on the cross appeal.
In my view both the appeal and cross appeal should be dismissed with costs.
Hon Woo JA:
This matter relates to an agreement between the plaintiff, a real estate agent, and the defendant, a person who wished to rent premises in Tsimshatsui for office use. On 1 September 1998, the plaintiff sent to the defendant a list of properties available to let, including the suit premises with the asking rental of $17.00 per sq ft per month. The plaintiff took the defendant to view the suit premises as well as other premises. On 8 September 1998, the day of the viewing of the suit premises, the plaintiff asked the defendant to sign, which the defendant did, an Appointment of Agent dated the same date ("the agreement") which contained the following clauses:
I [the defendant] hereby agree to engage your [the plaintiff's] service as my agent for assisting me to find premises in Hong Kong.
In consideration of your introduction of the premises listed hereunder, I agree to pay you the commission equivalent to 1% of the purchase price if I purchase, or ½ month's rental if I rent any of these premises.
I undertake that I will not approach the owners of these premises either directly or through other agents. I further agree to be bound by this agreement even if these premises are purchased or rented by my family members, nominees, principals or agents.
I am fully aware that you are also charging commission from owners of these premises and to this I have no objection.
..."
Dissatisfied with the plaintiff that it could not get a rent lower than the $17 per sq ft offered by the landlord, the defendant engaged another estate agent to negotiate with the landlord. However, that estate agent was not able to achieve a lower rental from the landlord because the landlord had already received an earlier offer (probably based on the 16 September 1998 fax referred to below) from the defendant at the rental of $17 per sq ft. Through that other estate agent, the defendant eventually signed a tenancy agreement with the landlord, at the rental of $17 per sq ft.
Deputy Judge Lok in the District Court gave judgment for the plaintiff in respect of the commission agreed to be paid by the defendant under clause 2 of the agreement, but rejected the plaintiff's claim for damages for breach of the agreement by the defendant. That damages claim was based on the allegation that if the defendant had not broken the agreement, the landlord would have agreed to pay the plaintiff certain commission upon the intended tenancy agreement being signed, as alluded to in clause 4 of the agreement.
The main issue raised in this appeal is whether the plaintiff should be entitled to the commission mentioned in clause 2 the agreement which is one half of the rental for a month of the premises intended to be rented in view of the situation that the plaintiff was seeking to obtain from the landlord or its agent 37.5% of the intended monthly rental as commission, which fact had ever been disclosed by the plaintiff to the defendant.
The key authority regarding the position of a double agent, an agent acting for both sides of a transaction, is Fullwood v. Hurley [1928] 1 KB 498 which was applied in Richard Ellis Ltd v. Van Hong tuon [1988] 1 HKLR 169. In Fullwood, a hotel broker, who was acting for the owner of a hotel to sell it, sued the defendant purchaser for brokerage. The broker introduced the hotel to the defendant by a letter which concluded "if business is done, we shall act for you at the usual brokerage". The defendant purchased the hotel after direct negotiation with the owner. It was held that the terms of the letter were not sufficient to establish a contract by the defendant to pay a double commission to the plaintiff and that the plaintiff, who was plainly acting as agent to the vendor, was not entitled to enter into such a contract with the defendant without the fullest disclosure to both vendor and purchaser, which he had failed to make or show. Lord Hanworth MR (at 502) said:
"... 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."
At page 502, Scrutton LJ had this to say:
"... 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."
As to the extent of such disclosure, Scrutton LJ, at page 503, said:
"... It is not enough merely to give notice that there is a commission, leaving the purchaser to inquire what it is and how much. It is the agent's duty to make the fullest disclosure on his second contract of all the benefit he is getting out of it, ..." (emphasis added)
He went on at page 504 of the report, as follows:
"... If the plaintiff or any public house broker wants to get two commissions, he must fulfil the two conditions of the law by making a full disclosure to each party of the exact nature of his interest before he makes the alleged agreement, and, if he gets a second commission, by obtaining the consent of each party. It is not enough to say that it is the usual or customary brokerage, because the law has held that a custom to the effect that an agent shall have double brokerage without informing his principal is unreasonable, and shall not be enforced; and anybody who does want to get double commission, where he has two different interests in himself which may clash, must fulfil to the strictest extent the requirements of the law.
... an agent who wants to make two contracts for double commission must do so in the clearest possible terms and with the clearest possible information to each of his principals what he is doing, otherwise he cannot sue under an alleged agreement." (emphasis added)
It is submitted by Mr Yu on behalf of the plaintiff that in the instant case, the plaintiff had fulfilled its obligations of making full disclosure to the defendant and of obtaining his consent after such full disclosure, relying on clause 4 of the agreement. Mr Yu submits that the defendant's full awareness that the plaintiff was charging commission from the landlord is tantamount to full disclosure by the plaintiff of its intent to seek commission from the owners. He also argues that the expression of no objection under clause 4 is tantamount to the defendant consenting to the plaintiff to act as double agent. There is no evidence that, as existent at the time of the alleged repudiation of the agreement on 21 September 1998 and as at the time of the trial, an agreement regarding commission between the plaintiff and the landlord or the landlord's agent, Jones Lang Wootton ("JLW"), had been concluded since the defendant had entered into a tenancy agreement with the owner through the services of another agent. In a "subject to contract" fax dated 15 September 1998 from the plaintiff to the defendant, the plaintiff set out the terms of a tenancy agreement to be offered to the landlord and sought the defendant's confirmation. In a "subject to contract" fax dated 16 September 1998 from the plaintiff to JLW, apart from setting out those offered terms, the plaintiff mentioned that it should be paid by JLW one-half of the commission to be earned by JLW, which was equivalent to 37.5% of the proposed monthly rental, upon the signing of the tenancy agreement. As the tenancy agreement was not signed through the services of the plaintiff, the question of the obligation of the landlord or JLW to pay the 37.5% commission to the plaintiff never arose.
As I see it, the law's imposition of an obligation on a double agent to make a full disclosure is for ensuring that the principals on different sides will not be adversely affected by the conflict of interests that a double agent is bound to serve. Unless there is the fullest disclosure of all material facts pertaining to the conflict of interests to both principals, they are not to be treated as having consented to the situation created by the double agency. The conflict of interests is not only apparent but also real. In a situation of sale and purchase or letting of premises, it can be normally presumed that the intended seller or landlord would like to achieve the highest price whereas the intended purchaser or tenant would like to achieve the lowest price. An agent acting for both parties is bound to have difficulty in serving the interests of both parties, while he wishes to put through the transaction to his own benefit to obtain commission from both sides.
In the present case, in the list of properties furnished by the plaintiff to the defendant as being available for letting, it was clearly stated that the rental for the suit premises was at $17 per sq ft per month. It must be in the defendant's interest for him, or for the plaintiff on his behalf, to achieve a rent lower than the $17 on offer. Under clause 2 of the agreement, the defendant agreed to pay one half of a month's rental to the plaintiff if he rented the suit premises. By clause 4 of the agreement, the defendant accepted that he was fully aware that the plaintiff were charging commission from the owners of the premises and to that he had no objection. However, what sort of commission the plaintiff would obtain from the landlord or what sort of commission the landlord had agreed to pay the plaintiff must be very relevant for the defendant's consideration whether the plaintiff would faithfully and truly act for his interest in the negotiation of the rental. Unless the exact amount of the commission that the plaintiff was attempting to charge the landlord had been disclosed to the defendant, the defendant would have cause to doubt whether the plaintiff was acting in his best interest. The defendant's distrust is well demonstrated by his eventual employment of another agent instead of the plaintiff to rent the suit premises.
Notwithstanding, Mr Yu argues that the defendant should be bound by clause 4 of the agreement that knowing full well that the plaintiff was charging commission from the landlord, the defendant agreed that he had no objection. In my judgment, the defendant's expression of no objection is not sufficient to amount to a position that he had waived the fullest disclosure of material facts, required of the plaintiff by law, that might give rise to the conflict of interests.
Mr Yu further argues that under clause 4, there was no restriction on the amount of commission charged by the plaintiff of the landlord, and therefore the plaintiff was entitled to charge whatever commission and the defendant was not to object to it. Approving this argument is to ignore the law that it is for the plaintiff as agent to make a full disclosure of the double agency to which the defendant as principal must have consented to with the full information. The defendant has the protection given by the law, and if the plaintiff wishes the law to apply, it is obliged to design provisions to do so effectively. Clause 4 does not have the required quality.
In the present case, the judge found that the plaintiff had discharged its duty to negotiate a lower rent on the defendant's behalf and therefore the plaintiff's obligation under the agreement to render services to the defendant had been performed. He gave judgment for the plaintiff to recover the commission as agreed by the defendant, although there was no full disclosure of the amount of the commission that the plaintiff would be obtaining from the landlord.
In my judgment, the judge was wrong. In Richard Ellis, before referring to Fullwood, Hunter JA at p 172A-G of the report had this to say:
"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 one's starting point on the law, article 46 in the 15th 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 (1874) LR 10 Ch App 96 where there are two oft-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.'" (emphasis added)
The trial judge had inquired whether the plaintiff had performed its duties under the alleged agency agreement and held that the plaintiff had done so. He found that the plaintiff had attempted to negotiate a lower rental for the defendant but failed, not due to the plaintiff's fault. But all this is irrelevant in view of the fact that the plaintiff was attempting to obtain commission from the landlord, without disclosing the exact nature and amount of that commission to the defendant. In my view, the judge was acting contrary to the clear language of the judgment of Sir William James LJ that I emphasised above. He erred to have put the defendant (the principal) to the danger of the inquiry.
My view is reinforced by another part of the judgment of Hunter JA in Richard Ellis where he was dealing with the absence of pleading in the defence of the defendant purchaser that the plaintiff had failed to make the Fullwood disclosure. He said at p 175B of the report:
"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 pleading 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." (emphasis added)
The plaintiff in the instant case also similarly failed to prove that it had fulfilled its Fullwood duty, and the natural result is that the agreement purportedly entered into between it and the defendant is unenforceable. Once a double agency is envisaged (and in this case by virtue of clause 4), with a potential of conflict of interests, the agent must comply with his Fullwood duty and make the fullest disclosure to the principal, or otherwise the agency agreement should not be enforced by the courts. Since there is no evidence that any such disclosure had been made by the plaintiff to the defendant prior to the repudiation of the agreement on 21 September or at all, the court should not allow the plaintiff to recover the commission under the agreement that was provided to be payable by the defendant.
Based on the fact that the plaintiff had not yet concluded any agreement with the landlord or the landlord's agent for the plaintiff to receive 37.5% of the monthly rental or any other sum as commission, two arguments were raised. First, a double agency situation had not arisen. Secondly, the duty on the plaintiff to disclose that commission to the defendant had not arisen either. I cannot agree. The 16 September fax was an attempt to obtain the double commission from the landlord that highlights the conflict of interests and underlies the immorality of the double agency that the authorities all sought to disapprove. The offer by fax that the plaintiff sought the confirmation of the defendant to make to the landlord or JLW was dated 15 September, and the seeking of the 37.5% commission from the landlord or JLW was dated 16 September. In order to satisfy the Fullwood duty, the plaintiff ought to have disclosed to the defendant that they were going to seek the 37.5% or whatever percentage of the rental provided for in the offer as commission from the landlord, otherwise the defendant could be led or misled to confirm the terms of the 15 September offer without the fullest relevant information. However, the plaintiff had not adduced any evidence to show that it had made any such disclosure to the defendant prior to 21 September or at all.
Moreover, it is conceded by Mr Yu that had the plaintiff told the defendant about the 37.5% commission proposed to be sought from the landlord, the defendant would be entitled to refuse to allow the plaintiff to obtain that commission. This power is given to the defendant according to the law of double agency as enunciated in the authorities cited above. Yet it may be argued that upon the defendant objecting to that commission, if the plaintiff then agrees not to obtain any commission from the landlord, the defendant is obliged to perform his obligation under the agreement to pay the plaintiff the commission of one-half of the monthly rental. However, there is no factual basis to sustain this argument, because in fact, the plaintiff had never informed the defendant of, let alone seeking his consent to, the commission that it was trying to get from the landlord. The law against double agency save where full disclosure has been made and the situation consented to by both principals is so clear that a disagreement of one of the principals should be considered as rendering the agreement between him and the agent unenforceable by the agent, or else the protection provided by the law will be rendered quite ineffective. In order to prevent the law from operating against the agent, the contract must provide most clearly for the situation. In the present case, the provisions of clause 4 of the agreement fall far short of being able to cover the situation.
As the agreement is unenforceable, the claim for the commission under clause 2 must fail, and the claim for damages, being the commission that the plaintiff would have received from the landlord, the subject of the cross-appeal, must also fail.
Moreover, the claim for the damages is based on an amount which the plaintiff had never informed the defendant of either at the time when the purported agreement was entered into on 8 September 1998 or even later. Allowing this claim would be allowing the plaintiff, in the position of a double agent, or where there was a clear clash of interests when it sought commission from the landlord, to claim against the defendant such undisclosed profit. This would be lending support to discredit, if not deprecate, the rule against double agency without the fullest disclosure that the courts have been trying hard to uphold. The amount of the commission from the landlord cannot, in law, be within the contemplation of the defendant. The provisions in clause 4 of the agreement that the defendant had no objection to the plaintiff charging commission from the landlord, in my view, cannot amount to an estoppel against the defendant from his denying that the agreement was unenforceable and the liability for that commission. Nor, a fortiori, can clause 4 constitute a promise by the defendant, imposed by law, that he would pay that commission to the plaintiff.
For the above reasons, I would allow the appeal and dismiss the cross appeal. I would order that the judgment in favour of the plaintiff be set aside, the plaintiff's claims be dismissed and the defendant do have the costs here and below.
Hon Le Pichon JA:
I agree with the Vice-President that both the appeal and cross appeal should be dismissed with costs. I should briefly state my own reasons.
The facts
So far as the facts are concerned, I gratefully adopted those set out in the judgment of Rogers VP and would only elaborate on two factual aspects, namely, the instructions given to the plaintiff on 15 September and the reason why a rent of $16 per square foot was not achieved.
As a preliminary matter, it is to be noted that the judge preferred the evidence of Ms Chan who gave evidence for the plaintiff to that of the defendant whose evidence the judge did not find convincing. The judge found the defendant's recollection of events and dates far from satisfactory and did not consider his evidence reliable. The judge also had doubts as to the defendant's credibility.
Ms Chan's evidence was that on 15 September 1998, she received a call from the defendant to the effect that his headquarters had approved the proposed tenancy and that he would proceed with the leasing of the property. Ms Chan was asked to prepare a formal offer letter for the defendant to pass to his headquarters for formal approval. Upon receiving those instructions, Ms Chan contacted Mr Heau of Jones Lang Wootton (JLW), the agent for the landlord, for the preparation of the offer letter and at the same time disclosed the identity of the prospective tenant to the landlord. Those instructions necessarily entailed Ms Chan taking steps to reach an understanding of the essential terms with JLW. For otherwise she would not have been in a position "to make an official offer to the [defendant]" (to use the defendant's own description in his fax sent on 21 September) as was his request. The offer letter was faxed to the defendant the same day and on the following day she sent a letter to JLW confirming the defendant's offer. Pausing there, I cannot see how any criticism can be levied at Ms Chan's conduct giving the defendant's instructions.
In his fax sent to the plaintiff on 21 September 1998, the defendant asserted that he never authorized the preparation of the contract. But what was critical were his oral instructions to the plaintiff on 15 September since the 16 September letter to JLW was a necessary consequence of those instructions. Whilst the judge did not make any specific finding on this issue, given his evaluation of the veracity of the evidence of Ms Chan and the defendant respectively, there is no doubt whose account would have been accepted.
The only other matter I need refer to is the suggestion that the reason why Centaline failed to achieve a lower rent of $16 per square foot was because the landlord had by then already received an offer of $17 per square foot from the defendant. Miss Li of Centaline's evidence to that effect was challenged and as the judge found, all Ms Li could say was that it was possible to negotiate for a rent of $16 per square foot but without any guarantee of success.
I now turn to consider the legal issue which arises in this appeal.
The scope of the Fullwood duties
The defendant's case is that the judge below failed to apply the principles of law to be found in Fullwood v. Hurley [1928] 1 KB 498 and Richard Ellis Ltd v. Van Hong-tuon [1988] 1 HKLR 169. As a preliminary matter, it is to be noted that these cases did not decide that under no circumstances may an agent act for more than one principal.
On the question of double commissions, Scrutton LJ made the following observation in Fullwood v. Hurley (supra) at 502 :
"… 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."
He then went on to consider the conditions that must be fulfilled where an agent wants to get two commissions (at 504):
"… he must fulfil the two conditions of the law by making a full disclosure to each party of the exact nature of his interest before he makes the alleged agreement, and, if he gets a second commission, by obtaining the consent of each party. It is not enough to say that it is the usual or customary brokerage, because the law has held that a custom to the effect that an agent shall have double brokerage without informing his principal is unreasonable, and shall not be enforced; and anybody who does want to get double commission, where he has two different interests in himself which may clash, must fulfil to the strictest extent the requirements of the law …
… an agent who wants to make two contracts for double commission must do so in the clearest possible terms and with the clearest possible information to each of his principals what he is doing, otherwise he cannot sue under an alleged agreement."
As at 8 September 1998 when the plaintiff and the defendant entered into the agency agreement, there was no agreement between the plaintiff and JLW and/or the owner as to the payment of commission notwithstanding the terms of clause 4 which might conceivably suggest the contrary. Nevertheless clause 4 disclosed to the defendant that the plaintiff intended to seek a commission from the owner of the premises. To this the defendant consented. So, at the time of the agency agreement, the plaintiff did disclose all that the law required of it.
Assuming that the duty to disclose is a continuing one, since no concluded agreement was ever reached whether with JLW or the owner, the only issue which arises in the present case is whether the plaintiff was under any obligation to disclose to the defendant negotiations (as distinct from any agreement) concerning the obtaining of a commission from JLW. Prima facie, the sheer impracticalities involved in having to disclose negotiations would
militate against such a conclusion. If there were such a duty, has each telephone call or communication to be reported? If not, where is the line to be drawn?
Both Fullwood and Richard Ellis were cases where the agent was seeking to recover a commission from the second principal. Full disclosure necessarily meant disclosing not only the existence of the contract with the first principal but also its terms. The present case is not such a case : there never was a second principal. The agent was here seeking to recover a commission from the first and only principal. In my judgment, whether and to what extent the Fullwood duties apply in such circumstances can only be answered by reference to the rationale behind those duties.
In his judgment in Richard Ellis, Hunter JA (at 172 B-C) cited Bowstead on Agency as stating the basic premise:
"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."
He also cited (at 173 H-I) the following passage from Megaw J's judgment in Anglo-American Merchants Ltd v. Bayley [1970] 1 QB 311 at 323:
"… 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."
In the present case, at the outset of the agency relationship, the defendant was given notice of and consented to the plaintiff seeking to obtain a commission from the owner. The potential conflict of interest of the plaintiff was both disclosed and accepted. It was a matter for the defendant whether or not he was willing to enter into an agency agreement which permitted such a potential conflict to arise. By agreeing to clause 4, the defendant explicitly accepted a potential double agency on the part of the plaintiff. Negotiations for a second commission cannot affect and should not have any impact on the defendant's obligations as the first principal under the agency agreement since it was something to which he had already explicitly consented. Once an agreement is reached with the second principal, the first principal must be informed and his consent to the payment of the second commission obtained. But the first principal's discretion to withhold his consent to the second commission (assuming that stage were reached) which would impinge upon the agent's entitlement to the second commission can have no effect on the first principal's own liability for the first commission. That being the position, rhetorically, one may ask on what basis the defendant (as first principal) is now to be relieved of his obligation to pay the first commission due under the terms of the agency agreement which expressly contemplated a potential double agency.
For these reasons, I would dismiss the appeal and the cross-appeal.
Hon Rogers VP:
The appeal and cross-appeal will be dismissed. There will be an order nisi that the costs of the appeal and cross-appeal will be to the plaintiff and defendant respectively.
(Anthony Rogers)
Vice-President (K H Woo)
Justice of Appeal (Doreen Le Pichon)
Justice of Appeal
Mr Denis Gordon Yu and Mr Anthony T Y Wong instructed by Messrs Tang,
Leung, Li & Tsang for the Plaintiff
Mr James Cheng instructed by Messrs Johnnie Yam, Jacky Lee & Co
for the Defendant
CACV 69/2000
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 69 OF 2000
(ON APPEAL FROM DCCJ 22979 OF 1998)
BETWEEN
CHESTERTON PETTY LIMITED Plaintiff
and
FRED GROENEVELD Defendant
Before: Hon Rogers VP, Woo JA and Le Pichon JA in Court
Date of Hearing: 19 October 2000
Date of Judgment: 31 October 2000
J U D G M E N T
Hon Rogers VP:
This is an appeal and cross appeal in an action by an estate agent to recover damages for breach of contract made by the defendant. The action was heard by Deputy Judge Lok sitting in the District Court. By judgment dated 17 January 2000, the Deputy Judge gave judgment in favour of the plaintiff for the sum of HK$56,508 plus interest. That sum was the equivalent of half a month's rental for the premises in question at the rate at which the premises were ultimately let.
The defendant appeals the judgment on the basis that the plaintiff is not entitled to any commission because there was a failure to make full disclosure of the fact that and circumstances in which the plaintiff would be acting as agent and receiving commission from both the landlord and the tenant. The plaintiff cross appeals that it should also be entitled to an award in respect of the loss of opportunity to earn a share in the commission earned by the landlord's agent.
The facts
Albeit there had been previous preliminary contact, as found by the judge, on 1 September 1998 the defendant had a telephone conversation with Ms Becky Chan, a manager in the plaintiff's employment, and told her that his company Euro Bag (Five Stars Collection) Limited was interested in leasing office premises in Tsimshatsui. It is clear that Ms Chan had faxed the defendant details of suitable properties on 1st September.
The defendant had said, when giving evidence, that he had seen an article relating to an office building at 26 Nathan Road in August, prior to receiving the details from the plaintiff. The copy of that newspaper article, which was produced at the trial by the defendant, was undated. When the defendant was shown that the article had in fact appeared in the South China Morning Post on 2 September the defendant conceded, in cross-examination, that he had only seen the article after he had received the listing details from the plaintiff.
On 8 September Ms Chan took the defendant to see an office on the 10th floor of that building. That was one of the premises listed in the information faxed on the 1st September. The asking price was $17 per square foot. The defendant wanted to make an offer of $11.5 per square foot. There is no dispute that on 8 September the defendant signed an agreement appointing the plaintiff as his agent to find premises. There was some dispute as to whether that was signed before or after the premises were inspected, but that seems to me to be irrelevant for the purposes of this case. The terms of the agreement are important. It is a short agreement. It is in both Chinese and English. For convenience, I set out the English terms.
"APPOINTMENT OF AGENT
I hereby agree to engage your service as my agent for assisting me to find premises in Hong Kong.
In consideration of your introduction of the premises listed hereunder, I agree to pay you the commission equivalent to 1% of the purchase price if I purchase, or 1/2 month's rental if I rent any of these premises.
I undertake that I will not approach the owners of these premises either directly or through other agents. I further agree to be bound by this agreement even if these premises are purchased or rented by my family members, nominees, principals or agents.
I am fully aware that you are also charging commission from owners of these premises and to this I have no objection.
I agree that this appointment will be binding for 3 months from today or for a period the court may deem reasonable if there is any dispute."
At the foot of the agreement was a handwritten note indicating that the premises were listed. There is no dispute that the Nathan Road premises which were visited fell within the agreement. One further matter is that the Defendant must have taken at least some degree of care in signing the agreement as he inserted his passport number.
The evidence was that on 9 September 1998 Ms Chan approached Mr Samson Heau of Jones Lang Wootton, who were the agents for the landlord of the property, and asked for the terms which would be offered by the landlord. There were subsequent discussions between them but the best that could be achieved was a rental of $17 per square foot with two months rent free. In her evidence Ms Chan said that by 22 September she realised that her recollection of events might be important for legal proceedings so she made a written record. That record headed "Action Taken" was produced at the trial. It shows that there was communication between Ms Chan and Mr Heau on 10 and 11 September and the best that Ms Chan could obtain for the defendant was 2 months rent free and a rent of $17. That was communicated to the defendant on 11 September.
Both the defendant and a Miss Li, a property agent with Centaline, gave evidence that through the introduction of a friend of the defendant, who worked for Centaline, the defendant was introduced to Miss Li. Unfortunately both the defendant and Miss Li were vague as to dates. However there was a copy of a letter signed by the defendant on his company notepaper, which was produced. That was dated 14 September. It was addressed to Centaline Property Agency Ltd. That letter read:
"Re=Confirmation of renting
10/F, 11/F or 12/F, 26 NatHan Road, Tsim Sha Tsui, Kowloon
We are pleaseD to inform you that we EurObag (Five Stars Collection) Ltd authoriZed centaline property agency limited miss cassandra Li on behalf of our comPany to confirm the renting agreement"
Ms Chan's note contains the reference that on 15 September the defendant had called her to tell her that headquarters in Europe had finally approved the leasing and he had asked her to provide an offer letter to be sent to headquarters. That seems to be confirmed by a statement in a fax which the defendant sent to the plaintiff on 21 September where it was said after the Defendant had been told that $17 was the best that could be obtained, he had requested Ms Chan "to make an official offer to me which I could show to my director in Holland."
On 15 September 1998 Ms Chan did send the defendant a fax setting out the terms of the proposed tenancy agreement which concluded with the clause:
"Agency commission:
The agency fee payable by yourself to Chesterton Petty Limited shall be the equivalent of half a month's rental stated in the Tenancy Agreement exclusive of all other outgoings. This fee is payable upon signing of an agreement to lease, Tenancy Agreement or upon possession whichever is the earlier.
(Please note that we reserve the right to charge the other party an agency fee also.)"
On the following day Ms Becky Chan sent a fax to Jones Lang Wootton (JLW) attention Mr Samson Heau in virtually identical terms save that the agency commission clause there read:
"The agency fee payable by yourself to Chesterton Petty Limited shall be the equivalent of 50% of total commission received from landlord, i.e. 37.5% of the monthly rental stated in the Tenancy Agreement exclusive of all other outgoings. This fee is payable on signing of an agreement to lease, tenancy agreement or upon possession whichever is the earlier.
(Please note that we reserve the right to charge the other party an agency fee also.)"
Ms Chan said in her evidence, supported by her note, that after she had faxed JLW on 16 September, the defendant called her and told her that headquarters considered the rent was too high and that as a result she contacted Mr. Heau and tried to see whether better terms could be obtained. She was challenged as to this but maintained her version of events. Perhaps the truth, here again, does not affect the result of the case.
The fact that the defendant had approached the landlord and JLW through another agent was communicated to the plaintiff by Mr. Heau. Apart from evidence of a telephone call made by Mr. Heau on 17 September, there was in evidence a fax JLW sent the plaintiff on 18 September.
Ms Chan's note indicates, as she confirmed in evidence, that she contacted the defendant on his mobile phone on Saturday morning the 19 September. The first call elicited the response that the defendant was still in bed. A short while later in the next call, Ms Chan reminded the defendant of the fact that he had agreed that the plaintiff would be the defendant's agent. The defendant was however, non-committal. Ms. Chan's reminder clearly was of no avail. There is a document dated 19 September in which the defendant, signing on behalf of Euro Bag, undertook to pay Centaline commission for the signing of the tenancy of the 10th floor.
It was not until 21 September that the defendant informed the plaintiff that he no longer wished it to act as his agent. The first fax that day was in the morning. It said precisely that. The second fax was sent in the afternoon. That contained the statement set out above. It went on to say that another agent had given the defendant a price of $16. But, in fact, as recorded by the Judge at page 10 of the judgment, all Miss Li could say was that she was prepared to negotiate for $16.
In his judgment the judge said at p.6:
"According to the evidence of the present case, it is not clear what was the agreement made between the Plaintiff and JLW relating to the payment of commission. Although Ms. Chan testified that there was an understanding between the said parties about the payment of commission, it is not known whether there was in fact such an agreement made between them. It was also quite possible that the Plaintiff had already disclosed all the interest in the transaction, as there was no agreement between the Plaintiff and JLW on the amount of commission when the Defendant signed the Agreement on 8th September 1998."
On that finding, as I see it, the judge came to the conclusion that there was no concluded agreement between the plaintiff and JLW as to the payment of commission by JLW to the plaintiff in the event that the premises would be let through the plaintiff. There may well have been an expectation on the part of both JLW and the plaintiff that 50% of the commission which would be received by JLW from the landlord would be paid to the plaintiff, but any such expectation would, in my view, not have matured into an agreement unless and until JLW had agreed to the terms of the fax of 16 September 1998. That they never did.
Mr. Cheng who appeared on behalf of the defendant sought to suggest that there must have been agreement between JLW and the plaintiff as to the payment of this commission and that that probably had taken place prior to 8 September 1998. In my view that is not borne out by the evidence and that was certainly not the finding of the judge below.
The double agency
The defendant seeks to avoid any liability under the agreement which he signed with the plaintiff on the basis that the plaintiff had not made full disclosure of all matters relating to the agreement which it had with JLW and the landlord. The defendant does not seek to demur from the fact that Clause 4 of the agreement, which I have set out above, acknowledges the fact that the plaintiff would be charging the owners of the property commission. But, it is said that that disclosure did not constitute the fullest disclosure because the amount of the commission and the circumstances of the negotiation and payment of the commission were not disclosed.
Reliance is made upon two cases in particular. The first is Fullwood v Hurley [1928] 1 KB 498 and the second Richard Ellis Ltd v Van Hong-tuon [1988] 1 HKLR 169. The basic proposition which is taken from those cases is that an agent must not act for nor accept commission from both sides and that if there are commissions to be accepted from both sides it must be on the basis that there is full knowledge and consent on the part of both principals. The point is perhaps encapsulated best in Scrutton LJ's judgment at p.503 where he said:
"… It (the order to view) does give the purchaser notice that there is some agreement or other between the vendor and the agent for commission, but that is not enough. It is not enough merely to give notice that there is a commission, leaving the purchaser to inquire what it is and how much. It is the agent's duty to make the fullest disclosure on his second contract of all the benefit he is getting out of it, and I think Mr. Emery agrees that there is nothing in the order to view by itself which imposed this liability on the purchaser."
Turning to the facts of this case, it appears to me that the defendant did make a contract with the plaintiff that the plaintiff would be the defendant's agent and that the defendant would not seek to use any other agent. By Clause 4, the defendant had given his consent to the possibility that the agent, the plaintiff, would obtain commission, directly or indirectly, from the landlord.
On the facts as found by the judge below, and indeed this seems to have ample support in the evidence, by 8 September when the plaintiff and defendant entered their agreement there was no agreement between JLW, or indeed the landlord, and the plaintiff for the payment of any commission. In those circumstances there is nothing further that could have been disclosed as of 8 September 1998.
Given the presence of Clause 4 in the agreement, the conclusion must be that, applying the strictest standards of full disclosure, the plaintiff would have been obliged to disclose to the defendant the amount of the commision once that had been agreed between the plaintiff and JLW, or possibly the landlord. That position had never arrived. It seems to me therefore that the finding of the judge below that there was no double agency is correct. It might be added, that if the defendant had refused to agree the amount of the commission to be obtained from JLW, the plaintiff would not have been able to obtain that. On the other hand, it does not seem to me that if the defendant refused to agree the amount of that commission it would debar the plaintiff recovering its normal commission from the defendant.
Indeed it seems to me that the plaintiff never was going to be an agent for the landlord in the strict sense of the term. There is no suggestion that the plaintiff would be doing anything on behalf of the landlord. The plaintiff was simply going to receive half JLW's commission.
There is no dispute that if the defendant was bound by the agreement with the plaintiff he was clearly in breach of Clause 3 of the agreement by approaching the other agent and eventually concluding a tenancy through that agency.
Cross Appeal
The plaintiff's cross appeal turns on the argument that by depriving the plaintiff of its position as agent for the defendant, the defendant deprived the plaintiff of the opportunity of earning a portion of JLW's commission as letting agent. Whilst that argument is attractive, it seems to me to fail for the simple reason that, despite the disclosure of the fact, in general terms, that the plaintiff would be seeking to be paid commission, which would come directly or indirectly, from the landlord, unless and until the defendant had given consent to the actual amount of the commission and had agreed the circumstance in which it would be payable, the plaintiff would not have been able to obtain any part of JLW's commission. The reality of the situation is that the Court can not be satisfied that the defendant's agreement would have been forthcoming. In those circumstances, it seems to me that the plaintiff is not entitled to recover on the cross appeal.
In my view both the appeal and cross appeal should be dismissed with costs.
Hon Woo JA:
This matter relates to an agreement between the plaintiff, a real estate agent, and the defendant, a person who wished to rent premises in Tsimshatsui for office use. On 1 September 1998, the plaintiff sent to the defendant a list of properties available to let, including the suit premises with the asking rental of $17.00 per sq ft per month. The plaintiff took the defendant to view the suit premises as well as other premises. On 8 September 1998, the day of the viewing of the suit premises, the plaintiff asked the defendant to sign, which the defendant did, an Appointment of Agent dated the same date ("the agreement") which contained the following clauses:
I [the defendant] hereby agree to engage your [the plaintiff's] service as my agent for assisting me to find premises in Hong Kong.
In consideration of your introduction of the premises listed hereunder, I agree to pay you the commission equivalent to 1% of the purchase price if I purchase, or ½ month's rental if I rent any of these premises.
I undertake that I will not approach the owners of these premises either directly or through other agents. I further agree to be bound by this agreement even if these premises are purchased or rented by my family members, nominees, principals or agents.
I am fully aware that you are also charging commission from owners of these premises and to this I have no objection.
..."
Dissatisfied with the plaintiff that it could not get a rent lower than the $17 per sq ft offered by the landlord, the defendant engaged another estate agent to negotiate with the landlord. However, that estate agent was not able to achieve a lower rental from the landlord because the landlord had already received an earlier offer (probably based on the 16 September 1998 fax referred to below) from the defendant at the rental of $17 per sq ft. Through that other estate agent, the defendant eventually signed a tenancy agreement with the landlord, at the rental of $17 per sq ft.
Deputy Judge Lok in the District Court gave judgment for the plaintiff in respect of the commission agreed to be paid by the defendant under clause 2 of the agreement, but rejected the plaintiff's claim for damages for breach of the agreement by the defendant. That damages claim was based on the allegation that if the defendant had not broken the agreement, the landlord would have agreed to pay the plaintiff certain commission upon the intended tenancy agreement being signed, as alluded to in clause 4 of the agreement.
The main issue raised in this appeal is whether the plaintiff should be entitled to the commission mentioned in clause 2 the agreement which is one half of the rental for a month of the premises intended to be rented in view of the situation that the plaintiff was seeking to obtain from the landlord or its agent 37.5% of the intended monthly rental as commission, which fact had ever been disclosed by the plaintiff to the defendant.
The key authority regarding the position of a double agent, an agent acting for both sides of a transaction, is Fullwood v. Hurley [1928] 1 KB 498 which was applied in Richard Ellis Ltd v. Van Hong tuon [1988] 1 HKLR 169. In Fullwood, a hotel broker, who was acting for the owner of a hotel to sell it, sued the defendant purchaser for brokerage. The broker introduced the hotel to the defendant by a letter which concluded "if business is done, we shall act for you at the usual brokerage". The defendant purchased the hotel after direct negotiation with the owner. It was held that the terms of the letter were not sufficient to establish a contract by the defendant to pay a double commission to the plaintiff and that the plaintiff, who was plainly acting as agent to the vendor, was not entitled to enter into such a contract with the defendant without the fullest disclosure to both vendor and purchaser, which he had failed to make or show. Lord Hanworth MR (at 502) said:
"... 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."
At page 502, Scrutton LJ had this to say:
"... 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."
As to the extent of such disclosure, Scrutton LJ, at page 503, said:
"... It is not enough merely to give notice that there is a commission, leaving the purchaser to inquire what it is and how much. It is the agent's duty to make the fullest disclosure on his second contract of all the benefit he is getting out of it, ..." (emphasis added)
He went on at page 504 of the report, as follows:
"... If the plaintiff or any public house broker wants to get two commissions, he must fulfil the two conditions of the law by making a full disclosure to each party of the exact nature of his interest before he makes the alleged agreement, and, if he gets a second commission, by obtaining the consent of each party. It is not enough to say that it is the usual or customary brokerage, because the law has held that a custom to the effect that an agent shall have double brokerage without informing his principal is unreasonable, and shall not be enforced; and anybody who does want to get double commission, where he has two different interests in himself which may clash, must fulfil to the strictest extent the requirements of the law.
... an agent who wants to make two contracts for double commission must do so in the clearest possible terms and with the clearest possible information to each of his principals what he is doing, otherwise he cannot sue under an alleged agreement." (emphasis added)
It is submitted by Mr Yu on behalf of the plaintiff that in the instant case, the plaintiff had fulfilled its obligations of making full disclosure to the defendant and of obtaining his consent after such full disclosure, relying on clause 4 of the agreement. Mr Yu submits that the defendant's full awareness that the plaintiff was charging commission from the landlord is tantamount to full disclosure by the plaintiff of its intent to seek commission from the owners. He also argues that the expression of no objection under clause 4 is tantamount to the defendant consenting to the plaintiff to act as double agent. There is no evidence that, as existent at the time of the alleged repudiation of the agreement on 21 September 1998 and as at the time of the trial, an agreement regarding commission between the plaintiff and the landlord or the landlord's agent, Jones Lang Wootton ("JLW"), had been concluded since the defendant had entered into a tenancy agreement with the owner through the services of another agent. In a "subject to contract" fax dated 15 September 1998 from the plaintiff to the defendant, the plaintiff set out the terms of a tenancy agreement to be offered to the landlord and sought the defendant's confirmation. In a "subject to contract" fax dated 16 September 1998 from the plaintiff to JLW, apart from setting out those offered terms, the plaintiff mentioned that it should be paid by JLW one-half of the commission to be earned by JLW, which was equivalent to 37.5% of the proposed monthly rental, upon the signing of the tenancy agreement. As the tenancy agreement was not signed through the services of the plaintiff, the question of the obligation of the landlord or JLW to pay the 37.5% commission to the plaintiff never arose.
As I see it, the law's imposition of an obligation on a double agent to make a full disclosure is for ensuring that the principals on different sides will not be adversely affected by the conflict of interests that a double agent is bound to serve. Unless there is the fullest disclosure of all material facts pertaining to the conflict of interests to both principals, they are not to be treated as having consented to the situation created by the double agency. The conflict of interests is not only apparent but also real. In a situation of sale and purchase or letting of premises, it can be normally presumed that the intended seller or landlord would like to achieve the highest price whereas the intended purchaser or tenant would like to achieve the lowest price. An agent acting for both parties is bound to have difficulty in serving the interests of both parties, while he wishes to put through the transaction to his own benefit to obtain commission from both sides.
In the present case, in the list of properties furnished by the plaintiff to the defendant as being available for letting, it was clearly stated that the rental for the suit premises was at $17 per sq ft per month. It must be in the defendant's interest for him, or for the plaintiff on his behalf, to achieve a rent lower than the $17 on offer. Under clause 2 of the agreement, the defendant agreed to pay one half of a month's rental to the plaintiff if he rented the suit premises. By clause 4 of the agreement, the defendant accepted that he was fully aware that the plaintiff were charging commission from the owners of the premises and to that he had no objection. However, what sort of commission the plaintiff would obtain from the landlord or what sort of commission the landlord had agreed to pay the plaintiff must be very relevant for the defendant's consideration whether the plaintiff would faithfully and truly act for his interest in the negotiation of the rental. Unless the exact amount of the commission that the plaintiff was attempting to charge the landlord had been disclosed to the defendant, the defendant would have cause to doubt whether the plaintiff was acting in his best interest. The defendant's distrust is well demonstrated by his eventual employment of another agent instead of the plaintiff to rent the suit premises.
Notwithstanding, Mr Yu argues that the defendant should be bound by clause 4 of the agreement that knowing full well that the plaintiff was charging commission from the landlord, the defendant agreed that he had no objection. In my judgment, the defendant's expression of no objection is not sufficient to amount to a position that he had waived the fullest disclosure of material facts, required of the plaintiff by law, that might give rise to the conflict of interests.
Mr Yu further argues that under clause 4, there was no restriction on the amount of commission charged by the plaintiff of the landlord, and therefore the plaintiff was entitled to charge whatever commission and the defendant was not to object to it. Approving this argument is to ignore the law that it is for the plaintiff as agent to make a full disclosure of the double agency to which the defendant as principal must have consented to with the full information. The defendant has the protection given by the law, and if the plaintiff wishes the law to apply, it is obliged to design provisions to do so effectively. Clause 4 does not have the required quality.
In the present case, the judge found that the plaintiff had discharged its duty to negotiate a lower rent on the defendant's behalf and therefore the plaintiff's obligation under the agreement to render services to the defendant had been performed. He gave judgment for the plaintiff to recover the commission as agreed by the defendant, although there was no full disclosure of the amount of the commission that the plaintiff would be obtaining from the landlord.
In my judgment, the judge was wrong. In Richard Ellis, before referring to Fullwood, Hunter JA at p 172A-G of the report had this to say:
"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 one's starting point on the law, article 46 in the 15th 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 (1874) LR 10 Ch App 96 where there are two oft-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.'" (emphasis added)
The trial judge had inquired whether the plaintiff had performed its duties under the alleged agency agreement and held that the plaintiff had done so. He found that the plaintiff had attempted to negotiate a lower rental for the defendant but failed, not due to the plaintiff's fault. But all this is irrelevant in view of the fact that the plaintiff was attempting to obtain commission from the landlord, without disclosing the exact nature and amount of that commission to the defendant. In my view, the judge was acting contrary to the clear language of the judgment of Sir William James LJ that I emphasised above. He erred to have put the defendant (the principal) to the danger of the inquiry.
My view is reinforced by another part of the judgment of Hunter JA in Richard Ellis where he was dealing with the absence of pleading in the defence of the defendant purchaser that the plaintiff had failed to make the Fullwood disclosure. He said at p 175B of the report:
"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 pleading 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." (emphasis added)
The plaintiff in the instant case also similarly failed to prove that it had fulfilled its Fullwood duty, and the natural result is that the agreement purportedly entered into between it and the defendant is unenforceable. Once a double agency is envisaged (and in this case by virtue of clause 4), with a potential of conflict of interests, the agent must comply with his Fullwood duty and make the fullest disclosure to the principal, or otherwise the agency agreement should not be enforced by the courts. Since there is no evidence that any such disclosure had been made by the plaintiff to the defendant prior to the repudiation of the agreement on 21 September or at all, the court should not allow the plaintiff to recover the commission under the agreement that was provided to be payable by the defendant.
Based on the fact that the plaintiff had not yet concluded any agreement with the landlord or the landlord's agent for the plaintiff to receive 37.5% of the monthly rental or any other sum as commission, two arguments were raised. First, a double agency situation had not arisen. Secondly, the duty on the plaintiff to disclose that commission to the defendant had not arisen either. I cannot agree. The 16 September fax was an attempt to obtain the double commission from the landlord that highlights the conflict of interests and underlies the immorality of the double agency that the authorities all sought to disapprove. The offer by fax that the plaintiff sought the confirmation of the defendant to make to the landlord or JLW was dated 15 September, and the seeking of the 37.5% commission from the landlord or JLW was dated 16 September. In order to satisfy the Fullwood duty, the plaintiff ought to have disclosed to the defendant that they were going to seek the 37.5% or whatever percentage of the rental provided for in the offer as commission from the landlord, otherwise the defendant could be led or misled to confirm the terms of the 15 September offer without the fullest relevant information. However, the plaintiff had not adduced any evidence to show that it had made any such disclosure to the defendant prior to 21 September or at all.
Moreover, it is conceded by Mr Yu that had the plaintiff told the defendant about the 37.5% commission proposed to be sought from the landlord, the defendant would be entitled to refuse to allow the plaintiff to obtain that commission. This power is given to the defendant according to the law of double agency as enunciated in the authorities cited above. Yet it may be argued that upon the defendant objecting to that commission, if the plaintiff then agrees not to obtain any commission from the landlord, the defendant is obliged to perform his obligation under the agreement to pay the plaintiff the commission of one-half of the monthly rental. However, there is no factual basis to sustain this argument, because in fact, the plaintiff had never informed the defendant of, let alone seeking his consent to, the commission that it was trying to get from the landlord. The law against double agency save where full disclosure has been made and the situation consented to by both principals is so clear that a disagreement of one of the principals should be considered as rendering the agreement between him and the agent unenforceable by the agent, or else the protection provided by the law will be rendered quite ineffective. In order to prevent the law from operating against the agent, the contract must provide most clearly for the situation. In the present case, the provisions of clause 4 of the agreement fall far short of being able to cover the situation.
As the agreement is unenforceable, the claim for the commission under clause 2 must fail, and the claim for damages, being the commission that the plaintiff would have received from the landlord, the subject of the cross-appeal, must also fail.
Moreover, the claim for the damages is based on an amount which the plaintiff had never informed the defendant of either at the time when the purported agreement was entered into on 8 September 1998 or even later. Allowing this claim would be allowing the plaintiff, in the position of a double agent, or where there was a clear clash of interests when it sought commission from the landlord, to claim against the defendant such undisclosed profit. This would be lending support to discredit, if not deprecate, the rule against double agency without the fullest disclosure that the courts have been trying hard to uphold. The amount of the commission from the landlord cannot, in law, be within the contemplation of the defendant. The provisions in clause 4 of the agreement that the defendant had no objection to the plaintiff charging commission from the landlord, in my view, cannot amount to an estoppel against the defendant from his denying that the agreement was unenforceable and the liability for that commission. Nor, a fortiori, can clause 4 constitute a promise by the defendant, imposed by law, that he would pay that commission to the plaintiff.
For the above reasons, I would allow the appeal and dismiss the cross appeal. I would order that the judgment in favour of the plaintiff be set aside, the plaintiff's claims be dismissed and the defendant do have the costs here and below.
Hon Le Pichon JA:
I agree with the Vice-President that both the appeal and cross appeal should be dismissed with costs. I should briefly state my own reasons.
The facts
So far as the facts are concerned, I gratefully adopted those set out in the judgment of Rogers VP and would only elaborate on two factual aspects, namely, the instructions given to the plaintiff on 15 September and the reason why a rent of $16 per square foot was not achieved.
As a preliminary matter, it is to be noted that the judge preferred the evidence of Ms Chan who gave evidence for the plaintiff to that of the defendant whose evidence the judge did not find convincing. The judge found the defendant's recollection of events and dates far from satisfactory and did not consider his evidence reliable. The judge also had doubts as to the defendant's credibility.
Ms Chan's evidence was that on 15 September 1998, she received a call from the defendant to the effect that his headquarters had approved the proposed tenancy and that he would proceed with the leasing of the property. Ms Chan was asked to prepare a formal offer letter for the defendant to pass to his headquarters for formal approval. Upon receiving those instructions, Ms Chan contacted Mr Heau of Jones Lang Wootton (JLW), the agent for the landlord, for the preparation of the offer letter and at the same time disclosed the identity of the prospective tenant to the landlord. Those instructions necessarily entailed Ms Chan taking steps to reach an understanding of the essential terms with JLW. For otherwise she would not have been in a position "to make an official offer to the [defendant]" (to use the defendant's own description in his fax sent on 21 September) as was his request. The offer letter was faxed to the defendant the same day and on the following day she sent a letter to JLW confirming the defendant's offer. Pausing there, I cannot see how any criticism can be levied at Ms Chan's conduct giving the defendant's instructions.
In his fax sent to the plaintiff on 21 September 1998, the defendant asserted that he never authorized the preparation of the contract. But what was critical were his oral instructions to the plaintiff on 15 September since the 16 September letter to JLW was a necessary consequence of those instructions. Whilst the judge did not make any specific finding on this issue, given his evaluation of the veracity of the evidence of Ms Chan and the defendant respectively, there is no doubt whose account would have been accepted.
The only other matter I need refer to is the suggestion that the reason why Centaline failed to achieve a lower rent of $16 per square foot was because the landlord had by then already received an offer of $17 per square foot from the defendant. Miss Li of Centaline's evidence to that effect was challenged and as the judge found, all Ms Li could say was that it was possible to negotiate for a rent of $16 per square foot but without any guarantee of success.
I now turn to consider the legal issue which arises in this appeal.
The scope of the Fullwood duties
The defendant's case is that the judge below failed to apply the principles of law to be found in Fullwood v. Hurley [1928] 1 KB 498 and Richard Ellis Ltd v. Van Hong-tuon [1988] 1 HKLR 169. As a preliminary matter, it is to be noted that these cases did not decide that under no circumstances may an agent act for more than one principal.
On the question of double commissions, Scrutton LJ made the following observation in Fullwood v. Hurley (supra) at 502 :
"… 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."
He then went on to consider the conditions that must be fulfilled where an agent wants to get two commissions (at 504):
"… he must fulfil the two conditions of the law by making a full disclosure to each party of the exact nature of his interest before he makes the alleged agreement, and, if he gets a second commission, by obtaining the consent of each party. It is not enough to say that it is the usual or customary brokerage, because the law has held that a custom to the effect that an agent shall have double brokerage without informing his principal is unreasonable, and shall not be enforced; and anybody who does want to get double commission, where he has two different interests in himself which may clash, must fulfil to the strictest extent the requirements of the law …
… an agent who wants to make two contracts for double commission must do so in the clearest possible terms and with the clearest possible information to each of his principals what he is doing, otherwise he cannot sue under an alleged agreement."
As at 8 September 1998 when the plaintiff and the defendant entered into the agency agreement, there was no agreement between the plaintiff and JLW and/or the owner as to the payment of commission notwithstanding the terms of clause 4 which might conceivably suggest the contrary. Nevertheless clause 4 disclosed to the defendant that the plaintiff intended to seek a commission from the owner of the premises. To this the defendant consented. So, at the time of the agency agreement, the plaintiff did disclose all that the law required of it.
Assuming that the duty to disclose is a continuing one, since no concluded agreement was ever reached whether with JLW or the owner, the only issue which arises in the present case is whether the plaintiff was under any obligation to disclose to the defendant negotiations (as distinct from any agreement) concerning the obtaining of a commission from JLW. Prima facie, the sheer impracticalities involved in having to disclose negotiations would
militate against such a conclusion. If there were such a duty, has each telephone call or communication to be reported? If not, where is the line to be drawn?
Both Fullwood and Richard Ellis were cases where the agent was seeking to recover a commission from the second principal. Full disclosure necessarily meant disclosing not only the existence of the contract with the first principal but also its terms. The present case is not such a case : there never was a second principal. The agent was here seeking to recover a commission from the first and only principal. In my judgment, whether and to what extent the Fullwood duties apply in such circumstances can only be answered by reference to the rationale behind those duties.
In his judgment in Richard Ellis, Hunter JA (at 172 B-C) cited Bowstead on Agency as stating the basic premise:
"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."
He also cited (at 173 H-I) the following passage from Megaw J's judgment in Anglo-American Merchants Ltd v. Bayley [1970] 1 QB 311 at 323:
"… 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."
In the present case, at the outset of the agency relationship, the defendant was given notice of and consented to the plaintiff seeking to obtain a commission from the owner. The potential conflict of interest of the plaintiff was both disclosed and accepted. It was a matter for the defendant whether or not he was willing to enter into an agency agreement which permitted such a potential conflict to arise. By agreeing to clause 4, the defendant explicitly accepted a potential double agency on the part of the plaintiff. Negotiations for a second commission cannot affect and should not have any impact on the defendant's obligations as the first principal under the agency agreement since it was something to which he had already explicitly consented. Once an agreement is reached with the second principal, the first principal must be informed and his consent to the payment of the second commission obtained. But the first principal's discretion to withhold his consent to the second commission (assuming that stage were reached) which would impinge upon the agent's entitlement to the second commission can have no effect on the first principal's own liability for the first commission. That being the position, rhetorically, one may ask on what basis the defendant (as first principal) is now to be relieved of his obligation to pay the first commission due under the terms of the agency agreement which expressly contemplated a potential double agency.
For these reasons, I would dismiss the appeal and the cross-appeal.
Hon Rogers VP:
The appeal and cross-appeal will be dismissed. There will be an order nisi that the costs of the appeal and cross-appeal will be to the plaintiff and defendant respectively.
(Anthony Rogers)
Vice-President (K H Woo)
Justice of Appeal (Doreen Le Pichon)
Justice of Appeal
Mr Denis Gordon Yu and Mr Anthony T Y Wong instructed by Messrs Tang,
Leung, Li & Tsang for the Plaintiff
Mr James Cheng instructed by Messrs Johnnie Yam, Jacky Lee & Co
for the Defendant