Hantec Investment Ltd v. Li Yau Man

LDPE 1313/2019

[2020] HKLdT 40

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 1313 OF 2019

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Before: Deputy District Judge Michelle Soong, Presiding Officer of the Lands Tribunal, in Court

Dates of Trial: 8 September 2020 and 11 September 2020

Date of Judgment: 24 December 2020

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J U D G M E N T

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BACKGROUND

1.By this application, the Applicant seeks to recover from the Respondent vacant possession of the land[1] more particularly described in the Amended Notice of Application (“the Land”) and damages for the Respondent’s erection of unauthorized structures thereon.

APPLICANT’S CASE

2.The Applicant entered into a tenancy agreement with the Respondent on or about 25 October 2017 (“the 2017 Agreement”) under which the Applicant let the Land to the Respondent for a period of two years commencing from 1 November 2017 to 31 October 2019 at the monthly rent of $295,800.

3.By a letter dated 22 March 2019, the Applicant informed the Respondent of their decision not to renew the tenancy upon expiration of the term.  Their solicitors also informed the Respondent of such decision again by a letter dated 4 October 2019.

4.The 2017 Agreement expired on 31 October 2019. However, the Respondent refused to return possession of the Land for the alleged reason that he had exercised the option to renew the lease.  As a result, the Applicant took out the present application to recover possession.

5.The Applicant contended that the Respondent had erected structures on the Land without their approval which constituted a breach of the 2017 Agreement.  By this application, the Applicant also seeks damages.

THE RESPONDENT’S CASE (BEFORE CLOSING SUBMISSIONS)

6.It is the Respondent’s case that he has been a tenant of the Land since 1993 as a result of his repeatedly exercising the option to renew as contained in all previous tenancy agreements with the Applicant.

7.The Respondent contended that for the last tenancy agreement (i.e. the 2017 Agreement), Clause 3 thereof conferred on the Respondent a perpetual right to renew the tenancy.  Pursuant to the said clause, he had exercised the option to renew by sending a written notice to the Applicant on 11 September 2019.  Upon expiry of the 2017 Agreement since 31 October 2019, the Respondent has been paying rent to the Applicant which have been accepting the same.

8.The Respondent further alleged that in or about 2008, the Respondent had sought permission from a Mr Au-Yeung of the Applicant to erect structures on the Land who had verbally agreed to the erection of the structures and had confirmed that the Respondent could continuously renew the tenancy.

9.In summary, Mr Chong, Counsel for the Respondent, contended that:-

(a)	Clause 3 of the 2017 Agreement was opened to two interpretations namely, (i) it was “an agreement to agree” as contended by the Applicant; or (ii) it conferred on the Respondent a “contractual right” to renew subject to payment of market rent.  He opined that the second one should be the correct interpretation because if Clause 3 did not confer on the Respondent a contractual right to renew, it would be superfluous and meaningless which did not make sense. It was an established legal principle that the Court would not likely accept that an express term would have no meaning at all[2].  Should the Tribunal find Clause 3 ambiguous, the ambiguity must be resolved in favour of a construction propounded by the Respondent upon application of the contra proferentem rule.
(b)	There was no breach of the tenancy by erecting structures thereon.
(c)	Even if there was a breach, there was waiver on the part of the Applicant.
(d)	The understanding and conduct between the Applicant and the Respondent for the past 26 years in renewing the tenancy suggested that both parties had treated the tenancy agreement as containing an option to renew and, on this basis, the parties would be bound by the doctrine of estoppel.

10.In response to these arguments, Mr Bosco Cheng, Counsel for the Applicant, submitted that:-

(a)	Clause 3 of the 2017 Agreement did not create an option to renew but at most an invitation to treat[3].
(b)	The Applicant did not waive the Respondent’s breach of the tenancy agreements in erecting unauthorized structures.
(c)	The Respondent should be liable to remove the unauthorized structures erected on the Land.
(d)	The Applicant’s acceptance of the monthly payment after expiry of the 2017 Agreement did not create a new tenancy.
(e)	The Applicant shall not be estopped from not renewing the tenancy with the Respondent simply because the lease had been renewed in the past 26 years.
(f)	The Respondent could not rely on any alleged oral promise on the part of the Applicant for a perpetual option to renew because ss. 3, 5 and 6 of the Conveyancing and Property Ordinance, Cap.219 required that all interests in land created orally and not evidenced by writing took effect solely as interests at will[4].

THE EVIDENCE

11.At trial, the Applicant called Mr Au-Yeung as their factual witness whereas the Respondent himself testified.

Mr Au-Yeung

12.It is Mr Au-Yeung’s evidence that he joined the Applicant company in or about 2001 and is currently its General Manager – Land and Business Development. After joining the Applicant, he had been responsible for negotiating with the Respondent on the tenancy affairs.  It had been their practice to start reviewing the terms of each existing tenancy about 6 months prior to its expiry date and, if they saw fit, to negotiate with the existing tenant on the terms of the renewal. Alternatively, the Applicant would consider other possible options including but not limited to putting the Land for lease in the market.

13.The Respondent used to negotiate with the Applicant towards the expiry of each and every prior tenancy for renewal thereof.  On each and every occasion, the Applicant took into account various factors including the market sentiment, the prevailing market rent, the terms proposed by the Respondent, the internal policy of the Applicant as to the use of the Land. Each decision to renew was assessed and made on a case-by-case basis.

14.In relation to the unauthorized structures, Mr Au-Yeung said that in or about mid-2008, the Applicant was aware that certain unauthorized structures had been erected on the Land[5] without their prior approval. Shortly thereafter, the Respondent attended his office together with a few unknown Chinese males to discuss about the unauthorized structures. During the discussion, the Respondent told Mr Au-Yeung that he had no intention to demolish the unauthorized structures and if the Applicant insisted the demolition, the Applicant would have to pay the Respondent and those unknown Chinese males a sum of $20,000,000 as compensation. The hostile attitude of the Respondent successfully deterred the Applicant from taking any drastic steps against the Respondent about the unauthorized structures at that time.  Mr Au-Yeung specifically denied having orally promised the Respondent a perpetual option to renew whether on that occasion or during any other occasion.   

The Respondent

15.During oral examination, the Respondent said that he had limited education level (primary school) and just partially understood the various tenancy agreements despite they were drafted in Chinese.  He further said that back in 1993, a Mr Tang, a representative of the Applicant, orally promised the Respondent that he could have perpetual right to renew the tenancy.  Mr Tang drew up the first tenancy agreement and explained to the Respondent that Clause 3 thereof gave him the right of perpetual renewal. The Respondent believed in Mr Tang’s words. 

16.During cross-examination, Mr Cheng read Clause 3 to the Respondent word by word and asked the Respondent if he considered that those words gave him a right of perpetual renewal.  The Respondent answered in the negative.

17.As the factual evidence of the Respondent in paragraph 15 above, which was only divulged during oral examination, could give rise to some legal issues that had not been pleaded in the Respondent’s case, Mr Chong was asked to clarify whether the Respondent was running any case about misrepresentation, undue influence, duress, non est factum etc..  Mr Chong confirmed that the Respondent would not raise any of these issues nor would he challenge of the validity of the 2017 Agreement.

CLOSING SUBMISSIONS

18.Mr Cheng and Mr Chong filed their respective written closing submissions on 10 and 9 September 2020 respectively.  As the trial resumed for oral closing submissions on 11 September 2020, Mr Chong handed up a Skeleton Reply to Mr Cheng’s written closing submissions expressing his concern about Mr Cheng’s “fundamental misunderstanding of the Respondent’s pleaded case and evidence”.

19.Mr Chong said it was not the Respondent’s case that the Respondent’s right of renewal derived from (a) oral promise from Mr Tang and (b) Clause 3 of the 2017 Agreement.  It had never been the Respondent’s case that the oral promises or Clause 3 created a contractual option and such were, therefore, never in issue.   Mr Chong considered that Mr Cheng’s submissions about the construction of Clause 3 and contractual option were wholly unnecessary.

20.As the Respondent’s case was, rather unusually, becoming less clear as the trial proceeded, I asked Mr Chong to clarify the Respondent’s case. Mr Chong confirmed that on the question of whether the 2017 Agreement had already expired or had been renewed, the Respondent would rely on the doctrine of estoppel by convention only[6].

21.Concerning Mr Chong’s comment that Mr Cheng had fundamentally misunderstood the Respondent’s case, I have some observations.

22.Paragraphs 20A and 20B of the Respondent’s Amended Notice of Opposition read:

“20A. The said tenancy agreement contained, inter alia, the express term that:-

“(3) … Should [the Respondent] wish to continue his tenancy… he should give notice of the same one month before the expiry (of the existing term) and the effective date of renewal should be specified in the new agreement

    （三）… 租約期滿乙方如若繼續租賃 … 須於壹個月之前以書面通知，續租則須訂新約方生效力。”

(hereafter called “the contractual option to renew”)

20B. The said tenancy agreement, as in the case of all previous written tenancy agreements between the parties since 1993, inclusive of the contractual option to renew, were drafted and drawn up by the Applicant for signature of the Respondent.” (emphasis added)

23.Paragraph 1 of Mr Chong’s Opening Submission dated 2 September 2020 reads:

“1. Upon close of pleadings, the following triable issues emerged for resolution of this Tribunal:-

… …

(a)	Whether Clause 3 of the 2017 Tenancy Agreement is identical or substantially similar to that provided in 13 previous tenancy agreements in that:-
	(i)	Clause 3 was a contractual option to renew; or alternatively
	(ii)	Clause 3 was ambiguous but both parties, in their past 26 years relationship as landlord and tenant, have, by their conducts, acted upon an understanding that it was a contractual option to renew and, on that basis, R’s tenancy had been renewed continuously 13 times bi-annually.” (emphasis added)

24.In paragraphs 42 to 44 of Mr Chong’s Opening Submission, it was submitted that:

“42. Whilst Clause 3 creates a contractual option to renew is a matter of construction, it is submitted that the Tribunal should have regard to the following facts and matters in considering this issue:-

…

43. … , it is submitted that, whilst it might be contended that Clause 3 is ambiguous, it is submitted that in such circumstances, the Tribunal would construe it against A’s contention, the maker of the document in cases of ambiguity.

44. It is submitted that, as a matter of construction, Clause 3 is opened to the following 2 interpretations:-

…” (emphasis added)

25.In the ensuing paragraphs, Mr Chong elaborated on why Clause 3 should be construed as conferring on the Respondent an option to renew, discussed the legal principles for construction of contractual term as well as the application of the contra proferentem rule.

26.Apparently, the Respondent did in the Amended Notice of Opposition pleaded that Clause 3 of the 2017 Agreement created a contractual option and Mr Chong did in his Opening Submissions run arguments on this issue.

27.It was therefore incorrect for Mr Chong to say in his Reply Closing Submission that the construction of Clause 3 had never been in issue.

28.To the contrary, the construction of Clause 3 had always been in issue until the Respondent changed course at the stage of closing submissions.  Suffice it to say that I have no recollection of the Respondent having taken the initiative to inform the Tribunal and the Applicant in the course of trial that such issue would be aborted, it was only fair for Mr Cheng to deal with that question substantively in his written closing submissions.

29.Paragraphs 21 to 28 above are to put the record straight both for fairness and in anticipation of any possible arguments about the costs of the Applicant’s final written submission during taxation should that turn out to be necessary.

30.For the sake of completeness, I shall very briefly touch on the interpretation of Clause 3. In my opinion, the meaning of Clause 3 is clear and unambiguous in that the phrase “續租則須訂新約方生效力” (translated as “renewal only takes effect upon execution of new tenancy agreement”) could not possibly be interpreted in a way to carry a totally opposite meaning. One therefore cannot possibly interpret it to mean that “renewal is effective even without execution of a new tenancy agreement” (which had been the Respondent’s original contention before he changed course), not to mention construing it to create an option to renew in perpetuity.

31.A basic principle of interpretation is that the intention of the parties is to be discovered from the words used in the document.  If their meaning is clear and unambiguous, effect must be given to them because that is what the parties are taken to have agreed to by their contract.  Various rules like contra proferentem rule may be invoked to assist interpretation in the event that there is an ambiguity.  But it is not the function of the court to search for an ambiguity when construing a document.  Nor should the rules which exist to resolve an ambiguity create an ambiguity which according to the ordinary meaning of the words is not there.  I think it is wise for the Respondent to at last abandon the argument about the construction of Clause 3 which is doomed to fail.

LIVE ISSUES BY THE STAGE OF ORAL CLOSING SUBMISSIONS

32.Parties are on common ground that the live issues by the stage of oral closing submissions are:-

(a)	Whether the Respondent was in breach of the 2017 Agreement by erecting unauthorized structure on the Land, entitling the Applicant to damages. (“Breaches”)
(b)	Whether the Applicant has waived the breach. (“Waiver”)
(c)	Whether the Applicant is estopped from not renewing the tenancy with the Respondent by reason of the fact that it has been renewing it with the Respondent for the past 26 years. (“Estoppel”)

ESTOPPEL

33.Mr Cheng relied on Unruh v. Seeberger [2007] 2 HKLRD 414 to set out the elements of an estoppel by convention:

(a)	Parties entered into some “transaction” or legal relationship on the basis of an assumption that was shared by or common to them both;
(b)	An attempt by one party to depart from the common assumption which departure would be unjust because of the part taken by him in occasioning its adoption by the other party; and
(c)	The other party would suffer detriment arising out of his having entered into the relevant transaction on the basis of the common assumption if the opposite party were afterwards allowed to set up rights inconsistent with the assumption.

34.Mr Cheng submitted that the common assumption must be communicated between the parties and acted upon.  What was important was for them to act in the belief, manifested by words or conduct, that they were both proceeding with the transaction on the basis of the same shared assumption.  Its content must be sufficiently certain to enable the court to give effect to it.

35.It was submitted that the Respondent could not rely on the doctrine of estoppel by convention because there is no evidence showing that the assumption of the Respondent about the 1993 Agreement and about the subsequent written tenancies providing a perpetual option to renew (even if the Court believes that the Respondent did have that assumption) was shared by Mr Tang.  Parties’ entering into new written tenancy agreements upon expiry of the previous ones since 1993 does not necessarily mean that Mr Tang was acting upon the Respondent’s assumption.  Mr Tang could have done so with a clear understanding that there was no option to renew in the tenancy agreements.  He could have done so simply because at the material time he considered it beneficial for the Applicant to enter into a tenancy agreement with the Respondent.

36.It was further submitted that even if Mr Tang shared the Respondent’s assumption (which is denied) and they both acted upon it, the commonality of such assumption ceased with Mr Au-Yeung took over the responsibility from Mr Tang to negotiate with the Respondent on the tenancy of the Land since about 2001.  Mr Au-Yeung’s evidence under cross-examination was that he did not know the dealings between Mr Tang and the Respondent.  There could not be any common assumption between Mr Au-Yeung and the Respondent.

37.Mr Cheng drew the Court’s attention to certain evidence which showed that Mr Au-Yeung did not just blindly renew the tenancy agreements as if the Respondent was exercising an option to renew as a right.  Evidence demonstrated that Mr Au-Yeung considered each and every proposed renewal on its own merits and varied the terms of the tenancies upon renewal or even called for early cancellation of the tenancies as the circumstances required.

38.On the other hand, Mr Chong submitted that the understanding and conduct between the Applicant and the Respondent for the past 26 years in renewing the tenancy for 13 times suggest that both parties treated the tenancy agreement as containing a contractual option to renew.  On this basis, the parties should be bound by the doctrine of estoppel by convention. In running this argument, Mr Chong relied on the following “facts” (in Mr Chong’s word):-

(a)	All the 13 tenancy agreements contained clauses identical or substantially similar to Clause 3 (“Fact 1”);
(b)	For the past 26 years, the Respondent purported to exercise its “option” to renew and the Applicant purported to “accept” the Respondent’s contractual rights (“Fact 2”); and
(c)	The parties had a habit of the Applicant accepting the Respondent’s exercise of its “option” without first having the new tenancy agreement signed and, in the meantime, rent for the “new tenancy” paid (“Fact 3”).

39.Mr Chong drew the Court’s attention to Mr Au-Yeung’s evidence that in around 2008 the Respondent told Mr Au-Yeung that he had invested over $10 million in the Land. Mr Chong said such “indisputable evidence” showed that the Respondent had indeed incurred this huge sum of money between 25 July 2007 and 28 February 2008.  Mr Chong queried that an experienced merchant would not as a matter of logic and common sense make such a huge investment to the land he rented if the lease contained no option to renew.  

40.Mr Chong considered that even though Clause 3 did not on a careful reading confer an option, it was irrelevant.  The issue was whether both Mr Tang and the Respondent had, since 1993, undertaken their affairs on such understanding, Amalgamated Investment & Property Co. Ltd. (in liquidation) v. Texas Commerce International Bank Ltd. was cited.

41.Mr Chong submitted that based upon the understanding of the existence of a perpetual option to renew, the Respondent had acted to his detriment by making substantial investment to the Land[7]. It was further submitted that the Applicant had every motive to drive the Respondent out of the Land as they could thereby reap the benefits of the Respondent’s investment.

42.Having considered the arguments of both Counsel, I am more persuaded by Mr Cheng’s arguments and have a number of further observations.

43.In relation to “Fact 1” heavily relied on by Mr Chong (see paragraph 38), in my view, the fact that all 13 tenancy agreements contained clauses identical or substantially similar to Clause 3 is neither here nor there because as construed literally, Clause 3 (appended below) does not give the Respondent an option to renew, whether perpetual or at all:-

Clause 3

「訂明乙方除所租用之地段外，其他地方不得佔用。租約期滿乙方如若繼續租賃或退租，須於壹個月之前以書面通知，續租則須另訂新約方生效力。」

44.The Respondent explicitly agreed under cross-examination that Clause 3 did not provide an option to renew.  I could not see how the fact that the first tenancy and all subsequent renewed tenancies contain this clause or similar clause could advance the Respondent’s position.

45.Concerning “Fact 3” (see paragraph 38), it is factually incorrect. I do not see “the parties had a habit of the Applicant accepting the Respondent’s exercise of its “option” without having the new tenancy agreement signed first and, in the meantime, rent for the “new tenancy” paid” as said.

46.Among the 13 renewals altogether, documents only showed three occasions[8] where the tenancy agreements were signed after the commencement of the term (i.e. having a retrospective commencement date). Those rare occasions certainly were not persistent and repetitive enough to become a habit.

47.In any case, even though the parties on a few occasions executed tenancy agreements some days after expiry of the preceding tenancy and then in the renewed tenancy, put a retrospective commencement date to immediately follow the end date of the previous term, that retrospectiveness could be intended to ensure tidiness and continuity in tenancy term rather than an indicator of there being an option to renew.  There is no mutual exclusivity between Mr Au-Yeung’s version of event (i.e. the Applicant decided to renew each and every tenancy after assessment on a case-by-case basis) and the fact that a few tenancies contain a retrospective commencement date. So even if “Fact 3” is factually correct, it is far from being an indicator of the existence of an option to renew in the previous tenancy agreements.

48.In relation to “Fact 2” (see paragraph 38), I heed of no evidence (e.g. letter, email or communications via social media) which shows that any of the previous tenancy renewal was a result of the Respondent’s purporting to exercise an option to renew.

49.From the evidence available, it appears that the very first time when the Respondent purported to exercise an option to renew was by way of his letter dated 11 September 2019.  That letter was only sent months after the Respondent had received the Applicant’s notice to quit in March 2019 and after he had obtained legal advice on the impact of the notice to quit.

50.The fact that the tenancy had been renewed for many times previously is, again, neither here nor there.  There could be a variety of reasons to explain why the Applicant had done so.  It could be out of commercial interest or out of convenience to spare the trouble of finding a new tenant.  In my opinion, drawing a conclusion of shared assumption of perpetual option to renew between the parties from the mere fact the tenancy has been renewed for many years is way too arbitrary.

51.One could not rule out the possibility that during the negotiations for renewal had the parties not been able to agree on an essential term (say, the rent), the intended renewal could have fallen through.  And if that happened, the landlord and tenant relationship between the Applicant and the Respondent could have ended at that point of time by virtue of Clause 3 because no new tenancy agreement could be executed at the end.

52.Mr Chong also tried to persuade the Court with the notion of commercial commonsense.  It was submitted that the Respondent had invested a lot of money in erecting the structures.  Reference was made to Mr Au-yeung’s evidence that one day in about mid-2008, the Respondent attended the Applicant’s office claiming that he had already spent $10 million in erecting the structures.

53.Mr Chong considered that the said verbal allegation made by the Respondent to Mr Au-Yeung was “undisputable evidence” of the Respondent having incurred a huge sum to improve the Land. On such basis, some calculations were made to illustrate that if the Respondent had not been given a perpetual option to renew, it would be against commercial commonsense for him to invest such a huge sum of money that could not be recovered under a short lease term.

54.Such line of reasoning is problematic.

55.It is clear from Mr Au-Yeung’s evidence that the alleged huge expenditure was only the Respondent’s own bare assertion.  Au-yeung did not say that he believed in the Respondent’s assertion or he had seen any proof in support of that allegation.  Mr Au-Yeung was essentially just recapping what the Respondent had told him after dashing into his office together with some unknown Chinese males on some day in about mid-2008 to talk about the unauthorized structures.

56.The focus of that part of Mr Au-Yeung’s evidence clearly was not about the truthfulness of the Respondent’s alleged huge expenditure but about the Respondent’s hostility during that particular encounter which eventually deterred the Applicant from taking drastic action about the unauthorized structures at that stage.

57.It should be noted that the Respondent’s alleged huge expenditure (“in the region of millions[9]” or “over $10 million[10]”) in erecting the structures etc. is not pleaded in the Respondent’s Amended Notice of Opposition[11]. Both Counsel have not addressed the Court about the truthfulness of such allegation of the Respondent.  In fact, whether such allegation should be believed or not was never raised or seriously argued. In my opinion, the Respondent’s alleged expenditure or investment on the Land should be more fairly described as “unpleaded” or “not argued” rather than “undisputed or indisputable”.

58.Without the benefit of seeing the evidence in relation to the alleged huge expenditure incurred, I am not going to take the face value of what the Respondent had said simply because parties have not argued on this matter.  Whether the Respondent did invest sum that was so huge that it could not be recovered without a perpetual option to renew remains unknown.

59.As regards the notion of commercial common sense which Mr Chong emphasized a lot, I see no basis to readily assume that the Respondent was a reasonable and seasoned businessman who would not make any investment decision that do not accord with commercial common sense.

60.On the Respondent’s own case, he was content to sign on whatever documents provided by the landlord to him for signature without bothering to read the documents or trying to understand what they mean.  His practice of blindly appending his signatures on documents carrying legal consequences without even checking their contents did not happen just for once but throughout the past 26 years. In his oral testimony, the Respondent even said that he was not aware of the duration of some of the tenancy agreements.  I am more inclined to think that the Respondent was not a person with business senses.

61.There could be a lot of reasons why the Respondent decided to spend money on the Land. He might think that by incurring more expenditure thereon, it would be easier for him to plead with the landlord for more tenancy renewals as the Applicant might feel morally obliged to let him the Land for a longer period of time.  It could be the Respondent’s assessment that the structures could make the business more profitable so that he could recover his money pretty quickly.  Or it could be that he decided to expend simply on impulse or as a result of commercial misjudgment.  One cannot assume that an oral promise for a perpetual option to renew must be the cause of the Respondent’s expenditure on the Land.

62.In the context of construing contractual terms, commercial commonsense cannot trump the words of the instrument, and that commercial commonsense cannot be applied retrospectively[12]. I believe these comments are no less apt for the present scenario.

63.To conclude, I see absolutely no evidence of clear and unequivocal promise having been made by the Applicant to the Respondent to constitute one of the essential elements of estoppel by convention. If there was any reliance, I do not see any detriment having been suffered thereby.  The Respondent has been utilizing the Land for profit-making or business purpose for over 20 years already.  In the absence of any express contractual provision conferring upon the Respondent a perpetual option to renew, I think it is nothing more than the Respondent’s wishful thinking to expect that he could rent the Land for as long as he wishes simply because he had spent money for the purpose of running his business, which I believe is just another way to fairly describe the Respondent’s alleged “improvement to the Land”.

64.It is clear that the erection of the structures was uninvited and was done on the Respondent’s own initiative without informing the Applicant in advance.  By these proceedings the Applicant was actually asking the Respondent to demolish the structures because they had no intention to retain the same.  Mr Chong’s suggestion that the Applicant has a motive to drive the Respondent out of the Land in order to reap the benefits of the Respondent’s investment is clearly unjustified.  In my view, the equitable principle of estoppel by convention shall not apply.

BREACHES

65.It is the Applicant’s case that the Respondent had erected structures on the Land without the Applicant’s prior authorization.  The District Lands Office (“DLO”) has registered warning notice in the Land Registry warning that in the event the unauthorized structures still remain on the Land by the prescribed deadline, the government shall without further warning re-enter the Land.

66.Mr Cheng submitted that this issue shall only be alive if the Tribunal found that the 2017 Agreement had been validly renewed.  It was further submitted that should it remain a live issue and if the Court ruled that the Respondent was in breach of the tenancy agreement, injunctive reliefs should be granted.  However, if this Tribunal ruled that the 2017 Agreement had expired without renewal, the Applicant would not require or expect the Tribunal to rule on the question of breach.

67.As I have already ruled that the 2017 Agreement had not been renewed and that estoppel could not be established, there is actually no need for me to make any finding on the question of breach.  Nonetheless, I briefly set out below parties’ arguments and my observations on this issue just in case I am wrong on the question of whether the 2017 Agreement has been renewed.

68.The Applicant pleaded Clauses 8 and Clause 10 of the 2017 Agreement in their Amended Notice of Application:-

Clause 8

「甲方同意將該地段租予乙方作露天儲物用途，但不保証該地段之合法土地用途符合乙方要求[如有需要乙方須自行向有關政府部門(包括規劃處及地政處)申請豁免，有關申請費用一切由乙方負責]。如地政處或規劃署發出警告信/告票等；乙方需於期限前遷出而甲方不作位任何補償。」

Clause 10

「如政府禁止該地段作上述用途，或乙方使用該地段作不合法用途，甲方有權即時終止租約，並保留向乙方追討損失之權利。」

69.In his written submissions, Mr Cheng also invoked Clause 14 and submitted that the Respondent had also breached Clause 14 by erecting unauthorized structures on the Land in breach of the Government Lease.

Clause 14

「乙方需遵守地契條款及香港法例，若乙方有所違反: 乙方需賠償甲方一切損失及所付的相關費用。」

70.Mr Cheng relied on Loyal Rich Trading Limited v. Green Energy Trading Limited[13]where the plaintiff (the owner of the property) sought an injunction against the defendant (the tenant of the property) which retained exclusive possession and control of the property after expiry of the tenancy agreement, that he do provide reasonable access to the plaintiff for the purpose of carrying out all such appropriate and necessary works in compliance with the notice issued by the Lands Department.  The plaintiff also sought alternative relief that the defendant shall at its own costs carry out all such necessary and appropriate works so as to comply with said notice.  Regarding whether the plaintiff should have an implied right of access to the property in case the tenant disregarded and ignored the notice issued by the Lands Department, the learned Deputy District Judge had the followings to say:

“49. Alternatively, even if assuming that the Agreement does not directly say what the plaintiff, the landlord, is entitled to do, in case the tenant, the defendant disregarded and ignored the PD Notice and LD Notice, the plaintiff should have an implied right to access to the Property for the limited purpose of observing the PD Notice and LD Notice.

57. … There is no material difference between a breach of Government Lease or PD Notice or LD Notice. The court simply cannot just stand by and permit the continuing breach of the PD or LD Notices, no matter the circumstances that it has been caused or allowed to come about.”

71.Regency Power Enterprises Limited v. SCS Express International Limited[14] was also cited. Here the plaintiff knowingly let a property, the use of which was restricted by the government lease to industrial use, to the defendant for commercial use.  The DLO upon inspection found that the use of the premises by the defendant was in breach of the government lease and had issued to the plaintiff a letter similar to the LD Warning Notice in the present case.  The plaintiff had made efforts to try to get the DLO to grant it some accommodation by paying forbearance fee. Subsequently, faced with the risk that the government will re-enter and/or exact very high forbearance fees from it, the plaintiff applied for an interlocutory injunction to restrain the defendant from carrying on its business at the premises.  In paragraphs 10 to 11 of his judgment, the learned Deputy High Court Judge Carlson granted the injunction and said:

“10. …. In any event, the tenancy agreement that it put forward and which regulates the parties’ position contains clause 4 supra which requires it to comply with all the covenants in the Government Lease.

11. In any event, even if one addresses this on the usual basis of American Cyanamid, the Plaintiff has shown an overwhelming contractual case after which the balance of convenience requires the grant of the injunction. It simply would not be right to allow this state of affairs to continue …”

72.On the other hand, Mr Chong on behalf of the Respondent submitted that first, Clause 8 expressly permitted change of user of the Land.

73.In relation to the interpretation of Clause 10, it had been well-settled, as early as in 1983, that the user provisions in all Block Crown Leases are descriptive rather than restrictive.  The description of use in the Block Crown Lease was not user covenant and, hence there would be no breach of the Block Crown Lease.  Given the fact that the Land formed part of the grant under the Block Crown Lease (started from 1 July 1898), AG v. Meldado Investment Ltd [1983] HKC 211 applied and using the Land for storage covered or otherwise would not constitute breach of the lease conditions of the Block Crown Lease. Even should there be breach of the Block Crown Lease, the same would only be “breach of contract” but not constituting “illegality”.

74.Furthermore, it was submitted that the 2017 Agreement contained no covenant preventing the use of the Land in breach of the “lease conditions of the Government Lease”.

75.There was also no term in the 2017 Agreement prohibiting the erection of structures on the Land, hence no question of “breach” would arise by erecting structures thereon, not to mention that Clause 8 permitted change of user so long as “waiver fees” and “forbearance fees” were paid.  As a matter of government practice and common sense, these fees would be payable to allow the erection of structures on agricultural land whether for storage or otherwise.

76.Except paragraph 75 above[15], I am generally agreeable to Mr Chong’s arguments and, on top of those, have the following observations.

77.Under common law, in the absence of an express covenant prohibiting alterations, a tenant can only be prevented from altering the demised property if the alterations amount to waste, or the alterations would be in breach of an express repairing obligations.  The test of waste is whether the act complained of is an act which has altered the nature of the thing demised.  If the permanent character of the property demised is not substantially altered, it is not waste for the tenant to do things which the covenants and conditions of the lease do not preclude him from doing. To build a new house on the demised land is not waste, unless it is an injury to the inheritance in the sense of destroying identity[16].

78.It is noted that the 2017 Agreement does not preclude the Respondent from erecting structures thereon.  In the absence of evidence showing a substantial change to the permanent character of the Land due to the erection of structures thereon, I do not consider that there was a breach of tenancy agreement on the part of the Respondent by erecting structures.

79.On the question of whether the Respondent was in breach of Clause 14[17] by violating the Government Lease, I note that the Government Lease was not produced by the Applicant as evidence of the particular condition(s) that was allegedly to be in breach.

80.Mr Cheng relied on the letters issued by the DLO (which stated that the erection of structures without the authority’s approval constituted a breach of the conditions of the Government Lease) as proof of the breach.

81.I do not think I am bound to accept whatever contents that are stated in letters issued by a government department to be true especially when the subject matter of the contents (i.e. whether a certain party is in breach of a government lease as a matter of law) will fall within the purview of the court in event of dispute.  In this regard, Regency Power could be distinguished because the defendant in that case actually accepted that the defendant’s business was in clear breach of the government lease whereas the Respondent in the present case does not admit a breach.

82.For Loyal Rich, the distinguishing features are first, the landlord in that case had produced the Government Lease (or the relevant part thereof) as evidence but such evidence is lacking here.  More importantly, the tenancy agreement in that case expressly states that the defendant’s liability and obligations shall be triggered as long as competent government authorities issued notices to rectify certain matters whereas in the present case the 2017 Agreement do not have such a provision and, therefore, whether the Respondent was actually in breach of Clause 14 is not as clear.

83.Therefore, even though there be a need for me to rule on the question of whether the Respondent was in breach of Clause 14 by violating a condition of the Government Lease, I do not think sufficient evidence has been produced for any conclusion to be made.

WAIVER

84.Mr Cheng submitted that the Applicant would not have waived any breach of Clauses 8 and 14 because it would subject the Applicant to the risk of re-entry and in fact the Applicant is now facing such risk as evidenced by LD’s warning notices and registration notices.  The various contemporaneous letters written by the Applicant or its solicitors and the fact that the Applicant had taken out the present application demonstrated such consistent stance of the Applicant.

85.On the other hand, Mr Chong submitted that even if the Respondent was in breach of the relevant terms of the 2017 Agreement, there was waiver on the part of the Applicant by their (a) continuing to accept rent from the Respondent since 2008 (when the structures started to exist) with knowledge of the alleged breach; (b) continuing to renew the tenancy for 5 times (biannually); and by (c) instructing the Respondent to represent the Applicant to apply for short-term waiver to sustain the continuous existence of the Structures on the lots.

86.It is the Applicant’s position that the issue of breach would not be pursued should this Tribunal find that the 2017 Agreement had expired without renewal.  As I ruled that the 2017 Agreement had not been renewed and the doctrine of estoppel shall not apply, the questions of whether there was any breach of the 2017 Agreement and if, affirmative, whether the breach has been waived do not require the Tribunal’s determination.  But in the event that I am wrong about the tenancy renewal point and the breach point, on the question of waiver, I am more persuaded by Mr Chong’s analysis.

CREDIBILITY

87.At trial, the Applicant called Mr Au-Yeung to give evidence whilst the Respondent himself testified. Both parties did not call Mr Tang to give evidence as a witness.

88.Mr Cheng submitted that the Respondent was not a credible and reliable witness.  His evidence as to when he had started to erect the unauthorized structures contradicted the undisputed aerial photos produced by the Applicant.  He initially claimed that he had sought prior approval from Mr Au-Yeung to erect the structures in mid-2008 but the aerial photos taken in February 2008 showed that the unauthorized structures had already been erected in February 2008 the latest.

89.He changed his evidence as to when the approval of Mr Au-Yeung was sought and gave altogether three different versions: (a) mid-2008; (b) before February 2008; and (c) before December 2007.

90.Mr Cheng also pointed out that the Respondent’s evidence about his having exercised the option to renew granted since 1993 was inconsistent with his own words as stated in the written notice dated 11 September 2019[18].

91.Mr Cheng submitted that Mr Au-Yeung’s evidence was credible because it was consistent with the contemporaneous documents.  For instance, his evidence that the Respondent did not seek his approval before erecting the unauthorized structures and he only had knowledge of the unauthorized structures in mid-2008 was consistent with the consequential acts the Applicant undertook as a commercial landlord in terminating the 2007 Agreement before it expired and entering into the 2008 Agreement with increased rent and new clauses added to protect the Applicant’s interest.

92.Mr Cheng invited the Court to reject the Respondent’s evidence and accept Mr Au-Yeung’s evidence.

93.The question of drawing adverse inference also arose.  Mr Cheng submitted that in civil proceedings, where a given allegation formed an essential part of a party’s case, the proof of such allegation rested on him[19]. The Applicant had discharged its burden of proof regarding the possession claim because undisputedly the 2017 Agreement had already expired.  It had also discharged its burden of proof regarding the unauthorized structures by adducing the warning notices and registration notices issued by the Lands Department.

94.It was submitted that the alleged oral promise by Mr Tang, the alleged option to renew, the alleged waiver and the alleged conducts of the parties giving rise to estoppel by convention did not form part of the Applicant’s case but were the essential ingredients of the Respondent’s case as pleaded in the Amended Notice of Opposition.  Accordingly, the burden of proving the aforesaid matters lied squarely on the Respondent as he who asserted must prove.

95.Mr Cheng therefore urged the Court to draw adverse inference against the Respondent for failing to provide a good reason for not calling Mr Tang to give evidence.

96.On the other hand, Mr Chong submitted that the Respondent himself was an important witness on the issue of existence or otherwise of an “understanding” of a perpetual right to renew.  As he had given a witness statement and testified on this important issue, the Respondent could not be criticized.  Citing the case Tullett & Tokyo International Securities Ltd. v. APC Securities Co. Ltd.[20], Mr Chong invited the Court to draw adverse inference against the Applicant for failing to call Mr Tang.

97.There is not much real dispute as to the legal principles to be applied in assessing the credibility of factual witnesses. I generally share Mr Cheng’s observations on the Respondent’s evidence and credibility.  I find Mr Au-Yeung a credible witness and find his version of events to be true in case of any inconsistency between Mr Au-Yeung’s and the Respondent’s respective versions.  

98.Whilst both Mr Cheng and Mr Chong invited the Court to draw adverse inference against their opponent, I do not find such exercise very meaningful in the present case.  There is no property in a witness.  The Applicant certainly was in a position to call Mr Tang who was their previous director. I would say the same for the Respondent who was acquainted with Mr Tang on a personal level and had private gathering with him like having tea some time before.  Even if I am to draw inference against the Applicant (which I am not prepared to), it would not make any difference to the end result because the Respondent’s evidence is by itself incredible.

DEMOLITION OF STRUCTURES?

99.Clause 5 of the 2017 Agreement deals with the condition in which the Land is to be returned to the Applicant when the Respondent moves out:

Clause 5

「乙方遷出之時必須在租期内將所有種植物及其他貨物搬走以清手續。倘若乙方藉故取巧不履行此條款，甲方有權不經法律程序而在兩名證人見證下將所有種植物及貨物清理，所需之費用乙方仍須負責不得異議。」

100.Notwithstanding the existence of the unauthorized structures since 2008, none of the tenancy agreements executed after 2008 including the one at suit (i.e. the 2017 Agreement) contains any clause requiring the Respondent to have the structures on the Land removed upon returning possession thereof to the Applicant at the expiry of the lease.

101.In common law, items which have been fixed to the land or building may have become part of the land/premises and, subject to any special provisions in the lease and certain exceptions, will be not removable by the tenant.  It appears that the unauthorized structures in this case, by reason of their degree and mode of annexation and their purpose or object of annexation, has become a fixture.  At least, I heard of no submission from the bench contending the otherwise.  Should that be the case, the Respondent as a tenant is not entitled to or is not obliged to remove them upon expiration of the tenancy. 

102.In his closing submissions, Mr Cheng agreed that if I ruled that the 2017 Agreement had not been renewed and that there be no breach of tenancy agreement by the Respondent by erecting the structures, then according to Clause 5 of the 2017 Agreement, the Respondent should not be required to demolish the structures but would be expected to return possession of the Land with the plants and goods thereon removed in accordance with Clause 5 of the 2017 Agreement.

103.Since I already ruled that the lease had not been renewed and that the doctrine of estoppel did not apply, and since I have not made any finding of the Respondent’s having breach the tenancy by erecting structures, my understanding is that the Applicant would abide by Clause 5 of the 2017 Agreement and would not require the Respondent to remove the structures upon returning vacant possession of the Land.   

CONCLUSION & DISPOSITION

104.To conclude, I find that the 2017 Agreement already expired on 31 October 2019 without renewal.  The Respondent shall forthwith deliver up vacant possession of the Land to the Applicant in accordance with Clause 5 of the 2017 Agreement and shall pay to the Applicant mense profits at the rate of $295,800 per month in respect of his occupation of the Land after expiry of the tenancy since 1 November 2019, if and to the extent that the same has not been paid, until deliver up of possession.

105.Parties agreed that costs should follow the event. I therefore order the Respondent to pay the Applicant’s costs of this application, to be taxed on the District Court scale if not agreed.

106.I thank Counsel for their assistance.

Mr Bosco Cheng, instructed by K. M. Lai & Li, for the applicant, present

Mr Chong Kai Man, instructed by LCP, for the respondent, present