Hantec Investment Ltd v. Li Yau Man

CAMP 92/2021

[2021] HKCA 1089

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 92 OF 2021

(ON AN INTENDED APPEAL FROM LDPE NO 1313 OF 2019)

_______________________

_______________________

Before: Hon Yuen and Au JJA in Court

Date of the Landlord’s Written Submissions: 27 April 2021

Date of the Tenant’s Written Submissions:  12 April 2021

Date of Judgment on stay of execution:  5 July 2021

Date of Reasons for Judgment on stay of execution and Judgment on leave to appeal: 30 July 2021

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REASONS FOR JUDGMENT
ON STAY OF EXECUTION AND
JUDGMENT ON LEAVE TO APPEAL

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Hon Yuen JA (giving the Judgment of the Court):

Introduction

1.By a summons dated 25 March 2021, the Respondent in LDPE 1313/2019[1] (for convenience, hereinafter referred to as “the Tenant”) applied for leave to appeal from a Judgment of the Lands Tribunal (“the Tribunal”) given on 24 December 2020 (“the Judgment”).  In the Judgment, the Tribunal ordered the Tenant to forthwith deliver vacant possession of the suit premises[2] (“the Land”) to the Applicant (for convenience, hereinafter referred to as “the Landlord”) and to pay mesne profits of HK$295,800 per month for his occupation of the Land after the expiry of his tenancy on 31 October 2019 until delivery up of vacant possession.  In the same summons, the Tenant also sought an order that “consequent upon leave to be granted [for leave to appeal], there be stay of execution of judgment herein pending judgment of the Tenant’s appeal [etc]”.

2.Pursuant to the Judgment and upon the ex parte application of the Landlord to the Tribunal, a Writ of Possession was issued on 9 April 2021 (“the Writ of Possession”) and a Notice to Occupier to Quit was issued and served upon the Tenant on 14 May 2021 requesting the Tenant to deliver vacant possession of the Land before 21 May 2021 (“1^st Notice”).  On the same day, the Tenant sent a letter to the Landlord’s Solicitors requesting that the Landlord withhold enforcing the Writ of Possession pending the determination and decision of the Court of Appeal of his applications.  The Landlord refused and replied that it would proceed with the enforcement proceedings.

3.On 21 May 2021, the Tenant issued another Summons applying for leave to stay the Landlord’s proceedings of possession on the basis of the Writ of Possession and the 1^st Notice, “pending judgment of the [Tenant’s] appeal from the [Judgment] of the Tribunal”.  Pausing here, it would be noted that the wording of this summons is incorrect, because unless and until leave to appeal is given, there is no appeal from the Judgment.  This court has therefore assumed that what was sought is a stay pending determination of the application for leave to appeal, and then if such leave is granted, pending the determination of the appeal proper.

4.On 7 June 2021, the Landlord issued a summons seeking leave to file out of time its affirmation in opposition to the Tenant’s application for stay of the proceedings of possession.  On 9 June 2021, this Court gave leave to the Landlord to file its affirmation in opposition within 14 days of the order, and granted an interim stay in favour of the Tenant pending the filing and service of the Landlord’s affirmation in opposition.

5.On 23 June 2021, the Landlord filed and served its affirmation in opposition.  On 25 June 2021, the Landlord served upon the Tenant another Notice to Occupier to Quit (“2^nd Notice”) requesting him to deliver vacant possession of the Land before 2 July 2021.

6.On 29 June 2021, the Tenant filed a Certificate of Urgency applying on an urgent basis for a stay of the Landlord’s proceedings of possession on the basis of the Writ of Possession and the 2^nd Notice, pending determination of the appeal (as to which wording, see the comments at para. 3 above).

7.Having considered the papers, the court decided that pursuant to its powers under Order 59 r.14A(1), Rules of the High Court (Cap. 4A), it would determine the Tenant’s interlocutory applications without a hearing on the basis of written submissions only, and informed the parties accordingly.  On 5 July 2021, the parties’ respective solicitors were informed that the application for stay of execution was refused for reasons to be handed down in due course.  The reasons for the refusal of stay, as well as the judgment on leave to appeal, appear below.

Background

8.1.  In view of the grounds of appeal in the proposed Notice of Appeal, it is necessary to set out the factual background in some detail.  In LDPE 1313/2019, the Landlord had instituted proceedings against the Tenant for:

(1) recovery of vacant possession on the grounds -  

(a) that the tenancy had expired by effluxion of time on 31 October 2019, alternatively,

(b) that the Tenant has breached the tenancy agreement in having erected various structures on the Land;

and

(2) damages.

8.2.  The Land had been let by the Landlord to the Tenant under two-yearly tenancy agreements since 1993.  By a Tenancy Agreement dated 25 October 2017 (“the 2017 T/A”), the Landlord let the Land to the Tenant for a period of two years from 1 November 2017 to 31 October 2019 at the monthly rent of HK$295,800. Clause 3 of the 2017 T/A provides as follows:

“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。”

(Translation)

“It is agreed that apart from the lots leased by Party B [the Tenant], other areas may not be occupied. If Party B wishes to renew the lease or not upon the expiry of the lease, he shall give one month’s written notice in advance, and renewal will only take effect upon a new lease being agreed”.

There were some other clauses relating to the use of the Land, which are not material to the application for leave to appeal.     

8.3.  In 2016, the Landlord received various warning letters (“the Warning Letters”) from the District Lands Office, Yuen Long (“DLO/YL”) requiring the Landlord to demolish or remove unauthorized structures on the Land, failing which the Government would re-enter the Land.  The structures had been erected by the Tenant. 

8.4.  The Landlord then requested the Tenant to remove the unauthorized structures, but the Tenant proposed that he would, at his own cost and expenses, apply for a waiver from DLO/YL in respect of the breaches.  For this purpose, the Landlord agreed to authorize the Tenant to apply to Government for a short term waiver (“STW”), but expressly reserved its contractual and equitable rights under the then existing tenancy agreement.[3]

8.5.  The application for a STW did not meet with Government’s approval. 

8.6.  By a letter in Chinese dated 22 March 2019, the Landlord informed the Tenant that the current term would expire on 31 October 2019, it has decided that it would not sign a new tenancy agreement with him, and accordingly the Tenant should vacate the Land on the expiry of the tenancy.  The Tenant claimed that on 11 September 2019, he wrote to the Landlord asserting that clause 3 of the 2017 T/A gave him a contractual right which he had been legally advised gave him an option to renew his tenancy, which option he purported to exercise thereby.  (The contents of this letter will be discussed later in this Judgment). 

9.1.  The Tenant refused to deliver up vacant possession upon expiry of the lease on 31 October 2019.  The Landlord commenced proceedings in the Tribunal on 8 November 2019.  The Amended Notice of Opposition (“the Amd N/O”) (pleaded by counsel) alleged the following:

-   he had continuously been the tenant of the Land “by virtue of a chain of written tenancies with option to the [Tenant] to renew”, and that he had continuously exercised his contractual option to renew (para. 6);

-   he had used the Land for open storage, which was agreed under clause 8 (even though the Landlord did not warrant that the lawful use of the Land complied with the Tenant’s requirements) (paras. 7 - 14);

-   Government had not “prohibited” use for storage (para.15) and such use was not “illegal” (paras. 16- 17);

-   however, if the said user was prohibited or illegal (para. 18), then he would rely on matters pleaded in paras. “19-22” (in fact, there was no para. 22 and para. 21 was only a general traverse). 

Para. 19 pleaded that the structures were erected prior to 2016 and with the express and/or implied consent and approval of the Landlord.  Particulars (a) – (g) of this paragraph included a pleading that the Tenant “incurred money and money’s worth in the erection of the said structures” (para. 19 (c)).  The “money and money’s worth” was not particularized. 

Para. 20 pleaded that further or alternatively, by reason of those matters, the Landlord was estopped from enforcing any implied term of the 2017 T/A that the Tenant shall not use the Land for any illegal purpose. 

Paras. 20A – 20F then pleaded that clause 3 was a “contractual option to renew” and “as a matter of” the parties’ conduct over the past 26 years, they “interpreted the same as conferring upon the [Tenant] the contractual right/option to renew” the tenancy upon paying open market rent.  It should be noted that the “conduct” pleaded did not include matters pleaded in para. 19(c).        

9.2.  However, by the time of closing submissions, the Tenant’s counsel Mr KM Chong confirmed that he was no longer arguing that the Tenant had a right of renewal derived from an oral promise by a former officer of the Landlord, or from clause 3 of the 2017 T/A (para. 19, Judgment).  He confirmed that the Tenant would only rely on estoppel by convention, based on an alleged common understanding of the parties that the Tenant had a perpetual option to renew.[4]  He relied on the following:

“(a) All 13 tenancy agreements contained clauses identical or substantially similar to clause 3 (“Fact 1”);

(b) For the past 26 years, the [Tenant] purported to exercise [his] “option” to renew and the [Landlord] purported to “accept” the [Tenant’s] contractual rights (“Fact 2”);

(c) The parties had a habit of the [Landlord] accepting the [Tenant’s] exercise of [his] “option” without first having the new tenancy agreement signed and, in the meantime, rent for the “new tenancy” paid (“Fact 3”)”.    

Mr Chong sought to rely on the evidence of Mr Au-Yeung Chi Hung (“Mr Au-Yeung), a representative of the Landlord, who said that in 2008, the Tenant demanded $20 million compensation for the structures during a meeting he had with the Tenant and some hostile men unknown to Mr Au-Yeung.  Mr Chong argued that based on the alleged understanding that such a “perpetual option to renew” existed, the Tenant had acted to his detriment by making “substantial investment” in the Land.   

The Tribunal’s Judgment

10.1.  In a clear and thorough judgment, Deputy District Judge Michelle Soong, sitting as Presiding Officer of the Tribunal, made the following key findings:

(1)    The wording of Clause 3 of the 2017 T/A Agreement was clear and unambiguous.  As per previous authorities, the clause was at most an invitation to treat.   The clause did not give the Tenant an option to renew, and this was accepted by the Tenant under cross-examination.[5] Therefore, the fact that all 13 tenancy agreements contained identical or similar clauses (Mr Chong’s “Fact 1”) did not advance the Tenant’s argument of estoppel by convention. 

(2)    The mere fact that the tenancy had been renewed previously did not prove the alleged shared assumption that the Tenant had a perpetual option to renew.  The Tribunal accepted the evidence of Mr Au-Yeung that the Landlord’s decision whether to renew was founded on a case-by-case assessment throughout the years, involving not only the prevailing market rent, but also market sentiment, and the Landlord’s internal policy on the use of the Land (the Landlord is an indirect wholly-owned subsidiary of an overseas company whose shares are listed on the Main Board of the Hong Kong Stock Exchange).[6] There was no documentary evidence that any of the previous renewals was pursuant to the Tenant having purported to exercise an option to renew, let alone the Landlord “accepting” such (Mr Chong’s “Fact 2”).  The only piece of documentary evidence asserting there was an option to renew was the letter dated 11 September 2019, some 6 months after the Landlord had informed the Tenant that it would not renew the tenancy on expiry by effluxion of time (para. 49, Judgment).      

(3)    The evidence did not disclose a “habit” of the Landlord accepting the Tenant’s “exercise of its ‘option’” and rent before a new tenancy agreement was signed (Mr Chong’s “Fact 3”).  The evidence showed a retrospective commencement date in the tenancy agreements on only 3 occasions, which could be due to the parties’ intention for continuity in the term of tenancy, but in any event it was far from indicating that the Tenant enjoyed a perpetual option to renew when balanced against Mr Au-Yeung’s evidence that the decision whether to renew was assessed on a case-by-case basis (para. 47, Judgment). 

10.2.   Mr Chong also submitted that it was “indisputable evidence” that the Tenant had invested “millions” in erecting the structures, and so as a matter of commercial common sense, he must have been given a perpetual option to renew for him to have invested so much.  Mr Chong relied on Mr Au-Yeung’s evidence that $20 million in compensation had been mentioned by the Tenant and some hostile men unknown to Mr Au-Yeung during a meeting in 2008.

10.3.  The Tribunal rejected the submission of “indisputable evidence”, because the figure was only the Tenant’s bare assertion, and Mr Au-Yeung did not say that he accepted that quantification or had seen any proof of such cost or valuation of the structures (para. 55).  The Tribunal also noted that the Tenant’s allegation of expenditure in the region of “millions” or “over $10 million” had not been pleaded (para. 57). 

10.4.  The Tribunal also did not find the Tenant a credible witness (para. 97) as he had 3 different versions of one alleged fact and his evidence was inconsistent with a contemporaneous document which he had himself written (paras. 89-90).  The Tribunal was also not persuaded to assume that he was a reasonable and seasoned businessman for the reasons given in paras. 59-60 of the Judgment.     

10.5.  Accordingly, the Tribunal rejected the Tenant’s argument of a perpetual option to renew based on estoppel by convention, and found that the 2017 T/A had expired on 31 October 2019.

10.6.  That being the case, it was not necessary for the Tribunal to determine the Landlord’s alternative claim that even if the T/A had been renewed, the Tenant’s structures on the Land constituted breaches thereof.  Nor was it necessary for the Tribunal to decide whether the Landlord had waived such breaches.  However, in case the Tribunal was wrong on the finding that there was no renewal, it set out its observations, which were to the effect that the Landlord had failed to prove the breaches as it had failed to produce the government lease, and in any event, it had waived such breaches.[7]  

10.7.  The Tribunal ordered the Tenant to deliver up vacant possession of the Land and to pay mesne profits and costs of the application with certificate for counsel.

Application for leave to appeal and stay of execution of the Judgment

11.1.   On 13 January 2021, the Tenant issued a summons for leave to appeal against the Judgment and for a stay of execution.

11.2.   After a hearing on 23 February 2021, the Tribunal gave a Decision on 12 March 2021 refusing both applications.

Applications to Court of Appeal

12.1.  As mentioned earlier in this Judgment, on 25 March 2021, the Tenant renewed his applications to this court.  The summons annexed a draft Notice of Appeal which contained substantially the same grounds of appeal as those put forward before the Tribunal for the leave application.

12.2.  Essentially, the Tenant seeks to argue that the Tribunal’s findings of fact were perverse or irrational in that they were unsupported by evidence, or were contrary to “uncontroversial documentary and/or viva voce evidence”.     

Discussion

Applicable legal principles

13.1.  Section 11(2) of the Lands Tribunal Ordinance (Cap. 17) (“LTO”) provides that any party to the proceedings before the Tribunal may appeal to the Court of Appeal against a judgment, order or decision of the Tribunal on the ground that such judgment, order or decision is erroneous in point of law, subject to section 11AA of LTO. 

13.2.  Errors in the fact finding exercise in which the finding is perverse or irrational, or is unsupported by evidence, or which is founded on irrelevant considerations, may constitute an error in point of law.  However, the appellate court must be astute to avoid what is in effect a rehash of the submissions on fact made at trial, as it must bear in mind the advantage of the trial tribunal has in having seen and heard the witnesses give live evidence (Ting Kwok Keung v Tam Dick Yuen [2002] 5 HKCFAR 336, paras. 41-42) and the “penumbra of imprecision” with which a trial tribunal expresses itself (Biogen Inc v Medeva Ltd [1997] RPC 1).     

13.3.  Section 11AA(1) of LTO requires that leave shall be obtained from the Tribunal or the Court of Appeal before an appeal under section 11(2) can be made.

13.4. Section 11AA(6) of LTO provides that leave to appeal shall not be granted unless the Tribunal is satisfied that:- (a) the appeal has a reasonable prospect of success; or (b) there is some other reason in the interests of justice why the appeal should be heard.

13.5.  In determining whether to grant an application for a stay of execution, the most important consideration is whether there is a good reason for doing so and the court would see if there are strong grounds of the proposed appeal (Stay Play Development Ltd v Bess Fashion Management Co. Ltd, unreported, HCA 4726/2001) and whether the appeal would otherwise be rendered nugatory (Wenden Engineering Service Co. Ltd v Lee Shing Yue Construction Co. Ltd, unreported, HCCT 90/1999, [2002] H.K.E.C. 1059).

The proposed grounds of appeal

14.In the Tenant’s proposed grounds of appeal and written submissions, Mr Chong first set out his interpretation of some passages in the Judgment, and then argued that the findings of the Tribunal (as so interpreted) were unsupported by evidence or contrary to uncontroversial documentary and/or viva voce evidence, and were hence perverse or irrational.

15.However, it is clear that for ground 1(a), the relevant passages in the Judgment have been misinterpreted.  In para. 57, the Tribunal was focussing on the figure(s) of “millions” or “over $10 million” which Mr Chong was asserting in final submissions was the cost of erecting the structures. A perusal of the Amd N/O shows that the Tribunal was clearly right to say that these figures had not been pleaded.  Nor were any (even approximate) figures mentioned in the Tenant’s witness statement (in contradistinction with the relatively small expenses of $38,000 the Tenant paid for consultants to apply for a STW, and toleration fees of $471,648.20 paid to DLO/YL, invoices and receipts for both being exhibited).  This ground is based on a misinterpretation of the Judgment and must be rejected.

16.1.  In ground 1(b), it is said that the Tribunal was wrong to find there was no evidence to support the Tenant’s contention that he exercised, and the Landlord accepted, a perpetual option to renew throughout the 26 years of relationship of landlord and tenant.  This relates to “Fact 2”.

16.2.  The Tribunal was entitled on the evidence to make such a finding.  The Tenant was unable to produce any documentary evidence (during those 26 years) in which he purported to exercise the alleged perpetual option to renew which was accepted by the Landlord (except of course for the 11 September 2019 letter which was sent some 6 months after the Landlord had already informed him that it would not be prepared to renew after the expiry of the then current term).  Indeed, the Tribunal would have been entitled to place weight on the lengthy period taken by the Tenant to make such an assertion.  If there had in fact been the convention alleged by the Tenant, one would have expected him to respond immediately with a reaction of surprise or indignation.  This ground is entirely devoid of merits and is also rejected.

17.1.  In ground 1(c), it is argued that the Tribunal was wrong to reject his submission that there was a “habit” for the Landlord and the Tenant to renew the latter’s tenancy before the succeeding tenancy agreement is signed.

17.2.  This argument only has to be articulated to be rejected.  It was entirely a matter for the fact-finding tribunal to decide if 3 times out of 13 amounted to a “habit” as the Tenant sought to argue.

18.1.  Ground 1(d) is predicated upon the Tenant having made investments which (he argued) supported his claim of estoppel by convention. 

18.2.  However, the Tribunal was entitled to find that the Tenant had failed to prove the common assumption.  In particular, the Tribunal was entitled to accept Mr Au-Yeung’s evidence that the Landlord’s decision whether to renew was founded on a case-by-case assessment throughout the years, involving not only the prevailing market rent, but also market sentiment, and the Landlord’s internal policy on the use of the Land.  Besides which, the existence of such an assumption was not the only reasonable explanation for the Tenant’s expenditure on the Land.  

19.1.  Ground 1(e) challenges the Tribunal’s assessment of the Tenant’s credibility as a witness.

19.2.  This argument is completely unmeritorious.  The Tribunal had set out at paras. 88-90 of the Judgment how the Tenant had given 3 versions of the same allegation, and the internal inconsistencies in his evidence.  The proposed grounds of appeal and written submissions do not even attempt to address these points.

20.1.  In ground 1(f), it is said that the Tribunal was “wrong in concluding that there was no detriment suffered by the [Tenant], despite the substantial investment the [Tenant] made on the Land by way of erection of structures and application of Short Term Waiver …”.  

20.2.  First, it can be seen from the Amd N/O that the erection of structures was not pleaded as a fact supporting the estoppel by convention (see the discussion in para. 9.1 above).  Further, as discussed above, the Tenant had failed to prove how “substantial” the investments on the Land were.  Certainly, there was no pleading of, and no evidence to prove, the “millions” asserted in Mr Chong’s closing submissions.  Moreover, the Tribunal noted that the Tenant had been utilizing the structures for his business.  No accounting evidence was adduced by the Tenant.  Therefore, there was no evidence to show when the cost of the structures would have been recovered by way of profits made from the business. 

20.3.  Regarding the costs and expenses of the application for a STW, it was clear from the evidence that the application was to avoid any adverse consequence of non-compliance of the Warning Letters issued by DLO/YL in March 2016 so that the structures could remain on the Land and the Tenant could continue with his business.  The Landlord only agreed to authorize the Tenant to apply for a STW without prejudice to the Landlord’s contractual and equitable rights under the 2017 T/A.  In the circumstances, there is no room for the argument that the application for a SWT was under the common assumption of an option to renew the tenancy.

21.The other “grounds” in the proposed Notice of Appeal are simply repetitions of the above, or purported conclusions from the above grounds.

22.In our view, there is no ground on which the Tenant can challenge the Tribunal’s findings of fact and the proposed appeal has no reasonable prospect of success. The application for stay pending the application for leave to appeal was therefore dismissed.   

Order

23.The Summonses dated 25 March 2021 and 21 May 2021 are dismissed with an order nisi that the Tenant pay the Landlord’s costs.  Unless an application to vary the costs order nisi is made by summons within 14 days after the date of this Judgment, the costs order will become absolute upon the expiry of that period.   

24.If no such summons to vary is filed, the Landlord may, within 28 days after the date of this Judgment, file a statement of costs for gross sum assessment, copied to the Tenant.  Should the Tenant dispute any item therein, he should, within 14 days after service, file a statement of opposition, copied to the Landlord. This court will then undertake an assessment of costs on paper.   

25.As this court considers that the applications were totally without merit, we make an order under O.59 r.2A(8) Rules of High Court that no party may request the determination to be reconsidered at an oral hearing inter partes. 

Mr Bosco Cheng, instructed by K M Lai & Li, for the applicant (the landlord)

Mr K M Chong and Mr Felix H F Tsang, instructed by Chow & Chow Solicitors, for the respondent (the tenant)