Win Glories Ltd v. Majorluck Ltd

LDPE 824/2017

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 824 OF 2017

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Before: Mr Lawrence Pang, Member of the Lands Tribunal

Date of Hearing: 8 November 2017

Date of Judgment: 17 November 2017

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J U D G M E N T

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Background

1.Notwithstanding that the hearing was conducted in Chinese and that the submissions by the parties are also in Chinese, I prefer to hand down this judgment in English because most of the important documents in the proceedings relied on by the parties and the legal authorities referred to by the respondent are in English.

2.The applicant is the owner of Market on Ground Floor of Commercial/Car park Block (also known as Kam Ying Shopping Centre), Kam Ying Court, 9 Kam Ying Road, Shatin, New Territories, Hong Kong (“the Premises”).

3.The Premises comprise one of the retail and carpark properties developed by the Hong Kong Housing Authority in conjunction with the public housing estates in Hong Kong. In April 2006, the Premises, among other similar retail and carpark properties, were assigned to Link Properties Limited (formerly known as The Link Properties Limited) for the floatation of the first real estate investment trust in Hong Kong, the Link REIT.  

4.By a tenancy agreement dated 9 March 2016 (“the Tenancy Agreement”), the Premises “TOGETHER with the use in common with the Landlord and all others having the like right of the entrances, staircases, landings, passages and lavatories in the Building in so far as the same are necessary for the proper use and enjoyment of the Premises …”[1] were leased to the respondent for a term of 6 years from 1 October 2015 to 30 September 2021.

5.Unlike a normal letting, according to the Fourth Schedule to the Tenancy Agreement[2], the Premises shall be used for the operation of a traditional market (街市) under the trade name of “Ma On Terrance Market (馬鞍台街市)” with only the trades and professions or businesses set out in the Schedule.

6.By the “Description of Premises” in Part II of First Schedule to the Tenancy Agreement[3]:

“2. Notwithstanding the total internal floor area stated in Paragraph 1 above (ie 7,638 square feet), the total designed internal floor area to be actually used by the Tenant as market stalls shall not exceed 4,678 square feet and this internal floor area shall not in any circumstances exceed 5,145 square feet in the event of modification of the layout of the market area … The rest of the area are to be reserved for use as common passages, refuse rooms, water closets, store rooms and any other service rooms as may be specified by the Landlord.” (emphasis added)

7.The applicant purchased the Premises from Link Properties Limited in May 2016 and thereafter on 1 June 2016 appointed Guardian Property Management Limited (“the Manager”) for the management of Kam Ying Shopping Centre (“the Building”) of which the Premises form part.

8.On 11 August 2017, the applicant applied to the Tribunal for recovery of possession of the Premises on the ground that the respondent has failed to pay their share of the joint charges in the sum of $351,762 (“the Joint Charges”) for the period from 1 June 2016 to 31 March 2017. It also sought to claim damages and interest, rates, future loss of rental, legal costs etc from the respondent[4].

9.By the written submission dated 3 November 2017 filed by the property manager of the applicant, the joint charges payable by the respondent for the period from 1 June 2016 to 31 August 2017 has been revised to $543,839.23 (“the Joint Charges”).

10.Nevertheless, on 18 August 2017, the respondent filed a Notice of Opposition in which it disagreed that the applicant had paid the Joint Charges on its behalf and therefore the respondent had no responsibility to reimburse it to the applicant. The respondent considered the Joint Charges as alleged by the applicant were in fact management fees which are not chargeable under the Tenancy Agreement.

The Joint Charges

11.Apart from the provision for paying rent and rates, by Clause 3 of Section II of the Tenancy Agreement (“Clause 3”), the respondent has to:

“pay all existing and future water, rates, electricity, telephone, gas and other utility charges payable in respect of the Premises and all charges for meters and all standing charges and deposits, and a fair proportion of any joint charges as determined by the Landlord or the manager for the time being of the Building or such part thereof as shall be owned by the Landlord (the “Manager”)” (emphasis added)

12.At the hearing, Ms Rita Tse (“Ms Tse”) of Messrs Tony Kan & Co, Solicitors who acts for the respondent confirmed that the respondent is not challenging its liability for paying the “joint charges” as reserved in the Tenancy Agreement. What the respondent disputing is the Joint Charges as alleged by the applicant were in fact management fees which are not chargeable under the Tenancy Agreement.

13.In her submission dated 3 November 2017, Ms Tse raised 3 issues of dispute, namely:

(1) What is the meaning of “joint charges” in Clause 3?

(2) Whether the Joint Charges the applicant demanding from the respondent fall within the meaning of “joint charges” in Clause 3?

(3) If the question (2) above is answered in the affirmative, whether the Joint Charges are a fair proportion?

Applicable Legal Principles

14.Ms Tse explained issues (1) and (2) would depend on the construction of contract in which regard she cited firstly the judgment of Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd & Others (1999) 2 HKCFAR 279 at 296D-I:

“… The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. … Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. ... But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”

15.Then Ms Tse referred to Smart Essence Development Ltd v Hong Kong Housing Authority, HCA 450/2016 (unreported, dated 28 April 2016) where Deputy High Court Judge Paul Lam SC cited at §44 the principle enunciated in Jumbo King above and at §46 the seven factors of consideration pronounced by Lord Neuberger in Arnold v Britton [2015] AC 1619 at pp 1628B – 1629F, §§16 – 23. Ms Tse in particular emphasised the fifth factor as follows:

“The fifth point concerns the facts known to the parties. When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. ...”

Meaning of “joint charges”

16.While I agree that the above principles are applicable, Ms Tse intended to apply the ejusdem generis rule which is explained in Chitty on Contract, 32^nd edition, Vol 1, §13-090 as follows:

“… where several words preceding a general word point to a confined meaning the general word shall not extend in its effect beyond subjects ejusdem generis (of the same class), applies in principle to the construction of contracts. The principle depends on the assumed intention of the framer of the instrument, i.e. that the general words were only intended to guard against some accidental omission in the objects of the kind mentioned and were not intended to extend to objects of a wholly different kind. Indeed, this principle follows as a corollary of the principle that the whole contract is to be considered, being simply that every word shall be taken in conjunction with the words that accompany it ...”

17.Ms Tse submits that Clause 3 only refers to “existing and future water, rates, electricity, telephone, gas and other utility charges etc” and therefore cannot include and should be distinguished from the management charges imposed by the Manager, ie Guardian Property Management Limited after its appointment.

18.I do not agree with Ms Tse because those utility charges etc refer only to those “payable in respect of the Premises” but there are charges that can be “determined by the Landlord or the manager for the time being of the Building or such part thereof as shall be owned by the Landlord.”

19.I do not consider the “joint charges” can have such a confined meaning contended for by the respondent. In fact §13-091 of Chitty on Contract deals with such situation:

“The ejusdem generis principle cannot, however, be applied unless there is a class to which the general words can be restricted. Therefore, where the matter specifically referred to are so various that they fall into no common category the meaning of subsequent general words is not limited by relation to them. ...”

20.Ms Tse emphasised that there is no definition for “joint charges” in the Tenancy Agreement and therefore the contra proferentem rule applies, citing Chitty on Contract, 32^nd edition, Vol 1, §15-012 which reads as follows:

“… as in the case of any other written document, in situations of ambiguity the words of the document are to be construed more strongly against the party who made the document and who now seeks to rely on them.”

21.Again, in my view, there is no uncertainty in the term “joint charges” that brings into play the canons of construction on ambiguities.  The court will only resort to applying the contra proferentem rule if the meaning cannot be found using the general rules of interpretation by reference to “ordinary and natural meaning” of the words as they are written down – also a general approach to contractual interpretation that has been summarised by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwick Building Society [1998] 1 WLR 896. 

22.As submitted by Mr Yau Kwok Fai (“Mr Yau”), a director of the applicant, the Premises were let “TOGETHER with the use in common with the Landlord and all others having the like right of the entrances, staircases, landings, passages and lavatories in the Building in so far as the same are necessary for the proper use and enjoyment of the Premises …” The Premises are not in isolation and a reasonable person would have understood that certain “joint charges” would necessarily be incurred by the Manager. At trial Ms Tse cannot deny that the respondent would stand to benefit from the services of the Manager.

23.A fortiori, there are indeed “common passages” etc inside the Premises reserved by the Landlord by reference to the description of the Premises at §6 above. See also the Layout Plan of the Premises at Annex I of the Tenancy Agreement.

24.In support of her argument that “joint charges” are confined to utility charges etc, however, Ms Tse makes reference to Clause 38 of Section II of the Tenancy Agreement at p13 whereby the respondent:

“shall observe and fulfil with such services quality and operational standard requirements not in conflict with the terms of this Agreement, as may be made from time to time by the Landlord and/or the Manager governing and controlling the use, services quality, safety and security of the Building and/or the Premises (the “Services Quality Requirements”) in accordance with the terms of the Fresh Market Standard Operation Guidelines at Annex II hereto.”

25.Paragraph B.1 in Part 2 of the Fresh Market Standard Operation Guidelines reads as follows:

“1. Utilities

The existing Market Operators shall submit documents containing details of utilities, such as water, electricity, gas and telecommunication, to the (Fresh Market Operation Team) at least two months before the handover date. The new Market Operators shall apply to the relevant providers of utilities, such as Water Supplies Department, electricity companies, gas companies and telecommunication companies, for the transfer of the relevant utilities and the change of name of relevant accounts. In addition, if any related facility (such as water meter or electricity meter) is shared with other users other than Link, the new Market Operators shall apply for the installation of a separate meter. If the installation of a separate meter is technically impossible, a separate sub-meter shall be installed. Otherwise, the parties involved shall reach an agreement on the sharing of related costs.” (emphasis added)

Ms Tse argues that “joint charges” would only be incurred in the latter situation when the related facility is shared and a separate meter is technically impossible.

26.However, I do not see how paragraph B.1 of the Fresh Market Standard Operation Guidelines etc would assist the respondent; as explained in §22 above, I do not consider “joint charges” in Clause 3 are confined to the utility charges etc. On the contrary, my view is further reinforced when paragraph B.1 of the Fresh Market Standard Operation Guidelines suggests “the parties involved shall reach an agreement on the sharing of related costs”. This latter is completely different from “a fair proportion of any joint charges” would be “determined by the Landlord or the manager” under Clause 3; obviously, the two provisions are talking about different items.

Whether the meaning of “joint charges” includes management charges

27.Also, according to Ms Tse, when the Tenancy Agreement was signed, both parties (ie the Landlord and the respondent) fully appreciated that no related facility (such as water meter or electricity meter) was shared with other users; therefore, there were no “joint charges” and Link Properties Limited or its agent Link Asset Management Limited never demanded any “joint charges” from the respondent.

28.If Ms Tse’s argument is correct, the provision of “joint charges” appear to be otiose and this mutilates against her assertion that “joint charges” are confined to the utility charges.

29.On the other hand, that “joint charges” were not incurred or charged to the respondent does not necessarily mean they would not be charged in the future. For instance, Mr Yau explained in trial that it would take some time to work out a fair proportion chargeable to the respondent; therefore, even by the time of the present application, the applicant was only chasing the Joint Charges for the period up to 31 August 2017.

30.Referring to the fifth factor in Arnold v Britton, supra, Ms Tse submits that the contractual parties and the respondent more particularly can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. That is, according to MS Tse, there would had been no “joint charges”. But my answer is “joint charges” were not incurred or more correctly not yet calculated; this is opposed to Ms Tse’s argument that “joint charges” would not have been envisaged at all. The latter would only be correct if the definition of “joint charges” refers only to the utility charges suggested by the respondent which I do not agree.

31.Ms Tse for the respondent argued that the Joint Charges demanded by the applicant comprise only the latter’s or the Manager’s operating expenses which are not “joint charges” per se and at most should be reflected in the management fee which is however not payable by the respondent under the Tenancy Agreement.

32.Ms Tse also tries to make comparison of the Tenancy Agreement with those for other shops in the Building where “Management Charge” was specifically provided in Clause 3.3 and paragraph 8 in the Schedule hereto. In contrast, there is none in the Tenancy Agreement.

33.In spite of this, I have accepted Mr Yau’s submission that the letting of the Premises is quite different from the other shops in the Building because the Premises are restricted to the operation of a traditional market as outlined in §5 above. For a standard shop, I agree that the management charge payable thereof can be more readily calculated or apportioned.

34.Indeed, in pursuit of the market operation, Clause 19(d) of Section IV of the Tenancy Agreement permits the respondent to grant licence(s) to third party(ies) to operate business on the Premises. As Ms Tse has pointed out, at Clause 19(d)(viiii):

“No fees other than licence fees, rates, air-conditioning charges and management fees shall be payable by the Licensees to the (respondent)”

35.While Ms Tse submits that the referral of management fees in this latter clause but none elsewhere in the Tenancy Agreement means no such charges are payable by the respondent, I consider otherwise.

36.As I mentioned at §33 above, the nature of running the Premises and those of the other shops are quite different and therefore the term “the management charge” apposite to the leases of the shops may not be applicable or fair to the respondent by reference to description of the Premises at §6 above. In this regard, I note the term “management charge” is used in the tenancies for the general shops which conveys the message that this is a “charge” which is consistent with the term of “joint charges”; on the other hand, the term “management fees” instead of “management charge” is adopted at Clause 19(d) of Section IV of the Tenancy Agreement. I fully agree that “… people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other.”[5]

37.While Ms Tse has only recited the fifth factor in Arnold v Britton, supra, I consider the third and fourth factors discussed in that case also relevant:

“19. The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. Judicial observations such as those of Lord Reid in Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, 251 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, 201, quoted by Lord Carnwath JSC at para 110, have to be read and applied bearing that important point in mind.

20. Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill‑advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re‑writing it in an attempt to assist an unwise party or to penalise an astute party.” (emphasis added)

38.In that case, the Supreme Court of the United Kingdom has supported a literal interpretation of a 1974 service charge clause in a lease even though by compounding service charges at 10% annually as it means, it would be harsh for the individual tenants. Lord Neuberger (providing the leading judgment in this case) held that that meaning has to be assessed in the light of: (i) the natural and ordinary meaning of the clause; (ii) any other relevant provisions of the contract; (iii) the overall purpose of the clause and the contract; (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed; and (v) commercial common sense; but (vi) disregarding subjective evidence of any party's intentions.

39.Having similarly reviewed Clause 3 which states “… any joint charges as determined by the Landlord or the manager …”, I agree that “joint charges” may comprise management charges which include, inter alia, the Manager’s staff costs, cleaning charges, maintenance and repair costs, gardening and decoration costs etc as per the Expense Statement from Guardian Property Management Limited.

Whether the Joint Charges are a fair proportion

40.By a letter dated 12 June 2017 to the respondent, the applicant explained how the Joint Charges were worked out. Basically it divided the total expenditure for the common area of the Building by the total internal floor area (24,174 sq ft) and multiplied the internal floor area (4,678 sq ft) of the Premises.

41.At this juncture, I would like to emphasize that the applicant adopted 4,678 sq ft instead of the total internal floor area of 7,638 sq ft. See the Description of the Premises cited at §6 above.

42.Turning to the respondent’s complaint that it has no idea of how the total internal floor area of 24,174 sq ft was arrived at, I consider it has turned a blind eye to the schedule of respective areas of the shops stated and attached to Expense Statement from Guardian Property Management Limited. I trust those areas can be readily verified subject to minor discrepancy or margin of error but bearing in mind Clause 3, the calculation will be “… determined by the Landlord or the manager …”

43.Thus, “(i)f the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other.” I agree that the Joint Charges as claimed by the applicant against the respondent a fair proportion.

Conclusion

44.The respondent is liable to pay the Joint Charges as demanded or claimed by the applicant for the period from 1 June 2016 to 31 August 2017, failing which the respondent has breached Clause 3 under Clause 1(a)(ii) of Section VI of the Tenancy Agreement.

45.However, by section 58(2) of the Property and Conveyancing Ordinance, Cap 219, “the court may grant or refuse relief, as the court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, thinks fit ...”

Order

46.Having regard to the above, I make the following order:

(1) Subject to paragraph (3) below, the respondent do deliver vacant possession of the Premises to the applicant;

(2) The respondent do pay the applicant arrears of Joint Charges for the period from 1 June 2016 to 31 August 2017 in the sum of $543,839.23;

(3) If the respondent should on or before 12 December 2017 (“Relief Expiration Date”) pay into the applicant all the arrears of the Joint Charges as stated in paragraph (2) above, the respondent be relieved from the forfeiture incurred herein, and the lease of the Premises be reinstated.

Costs

47.As the applicant does not ask for costs, there be no order as to costs.

The applicant, represented by its director, Mr Yau Kwok Fai, appeared in person

Ms Rita Tse, of Messrs Tony Kan & Co, appeared for the respondent