Chan Hing and Others v. Lai Kwong and Others

HCA001343/1977

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Coram: Leonard, J. in Court

Date of Judgment: 5th July, 1978.

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JUDGMENT

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1. In this action the plaintiffs claimed possession of the rear portion of the Ground Floor, No.164, Nam Chang Street (the premises) from the defendants on the basis that the first defendant in subletting the premises to the second and third defendants was in breach of a tenancy agreement dated the 6th December 1976 between the plaintiffs and the first defendant whereby the premises were let to the first defendant for a term of six years commencing from the 1st of January 1977 at a rent during the first three years of the term of $2,300 and during the residue of the term at a rent of $2,800 payable in advance in the first day of each and every calendar month. The Tenancy Agreement was admitted. It contains a clause 2(j) in the following terms:

It further contains a forfeiture clause in the following terms:

Clause 6 of the agreement is in the following terms:

"6. The acceptance of rent by the Landlord shall not be deemed to operate as a waiver by the Landlord of any right to proceed against the Tenant in respect of a breach by the Tenant of any of his obligations herein contained."

I feel I should mention straight away that the effect of the latter clause was not canvassed before me but it does not say that the acceptance of rent shall not be deemed to operate as a waiver of the right to forfeiture and I should have been indeed slow to allow the plaintiffs to succeed on their claim for forfeiture if satisfied that the plaintiffs had accepted rent after knowledge of subletting by the first defendant.

The first defendant's defence was:

"that prior to the execution of the said Tenancy Agreement dated 6th December, 1976, the Plaintiffs had expressly agreed to allow the first Defendant to underlet or sublet the said premises or any part thereof in consideration of the first Defendant paying to the Plaintiffs the following further sums:

This paragraph was subsequently amended and I will deal with these amendments in due course.

2. The first defendant admitted subletting part of the premises to each of the second and third defendants and claimed in the alternative that the plaintiffs had notice, actual or constructive of the said subletting, but despite such notice, the plaintiffs continued to accept rent from the first defendant up to and including 31st May, 1977 and thereby waived their right (if any) to terminate or forfeit the tenancy. There was a counterclaim for rectification of the Tenancy Agreement by deleting Clause 2(j) of it and for a declaration that the first defendant was entitled to sublet. The second and third defendants relied for justification of their occupation on the two Tenancy Agreements admitted by the first defendant.

3. There were therefore for my consideration two broad issues: firstly whether the Tenancy Agreement of the 6th December 1976 represented the consensus of the parties to it and secondly whether the plaintiffs had accepted rent with knowledge of the sub-tenancies. No application was made to me for an order that the onus was on the first defendant or that the first defendant should begin. The plaintiffs did so. All three plaintiffs gave evidence and the plaintiffs called as a witness Mr. LOO Yau-kan also known as Lawrence Loo, a clerk in the firm of Yung, Yu, Yuen & Co. the solicitors responsible for the preparation of the Tenancy Agreement. The first defendant called YAM Kam-hung, a clerk with Messrs. Yung, Yu, Yuen & Co. Mr. CHAN Ping-kuen, a partner in that firm; Mr. Philip Yuen, another partner. He gave evidence himself called his aunt, a Madam LEE Tse-chun and LEE Sing-kwong. I shall comment in some detail later upon the evidence of these last three witnesses. On a careful consideration of all the evidence offered I make the following findings of fact. Negotiations between the parties opened on or about the 4th December 1976 when it was agreed between the parties that a tenancy would be granted to the first defendant for a term of six years at a rent of $2,300 for the first three years and $2,800 per month for the succeeding three years commencing on the 1st of January 1977. At this stage it was always visualized by the parties that a formal agreement would be entered into between them after it had been prepared by solicitors. I am confident that on this occasion the question of subletting was not considered by the parties. By "the parties" here I moan the three plaintiffs on the one hand and the first defendant and his aunt who was (according to the first defendant and the aunt) to finance the first defendant in setting up a tailoring business. On the 4th of December the sum of $1,000 was paid by the first plaintiff to the second defendant, CHAN Hing. He made out a receipt for it in Chinese and on the back of this receipt were recorded in Chinese what I may refer to as the bare bones of the agreement subsequently to be entered into. These read:

On the morning of the 6th December 1976 the first plaintiff, CHAN Hing and the third plaintiff, Madam TAM Ying-chun went with the first defendant and his aunt Madam LEE Tse-chun to the offices of Messrs. Yung, Yu, Yuen & Co. There they saw Mr. YAM Kam-hung. They showed him the receipt for the sum of $1,000 I have mentioned. He took certain instructions in writing in which again there was no reference to subletting. He ascertained the name, identity card number, address of the first defendant that the premises were to be used for business purposes only and the rates to be paid by the landlord. Armed with that information he proceeded to prepare, on a stereo typed form into which he typed various amendments, the Tenancy Agreement required. At this stage none of the parties had had the advantage of consulting with any solicitors in the firm. Initially Mr. YAM Kam-hung explained the terms of the draft to them and when he came to Clause 2(j) there was, immediately, dissention as to whether or not subletting should be permitted. Mr. Yam's evidence on this point which I accept was to the effect that after discussion the landlord (by whom I would take him to refer to Madam TAM Ying-chun as of the three plaintiffs I would take her to be the dominant character) said "It is not allowed to sublet the whole of the premises" (my emphasis). He went on to say that the first defendant said he might have to sublet if business was bad and therefore he inserted the words "the whole of" in Clause 2(j) before the words "said premises". It apparently did not satisfy the parties and when he went out to lunch they were still discussing the question. Then Mr. Loo spoke to them. He said he explained the agreement to them clause by clause. There was discussion and the result of that discussion was that Clause 2(j) was to remain in the agreement but to quote him "they would settle the matter elsewhere". He stated that the third plaintiff, Madam Tam said she would ask her son (who was not present and was not to sign the Tenancy Agreement for some four days) to give consent in writing. Mr. Loo was of the impression that the parties signed in the expectation of subletting. To quote him again "LAI Kwong said if his business was not as good as he expected he would have to sublet". He was asked in cross-examination:

I did not consider Mr. LOO Yau-kan a witness on whose memory we could rely with any degree of confidence. For example he told us that he gave CHAN Hing, the first plaintiff, a photostat of the Tenancy Agreament after it had been signed by the second and third plaintiffs and the first defendant. That was incorrect. The photostat had not been given to the first plaintiff but to the first defendant. Again he was a witness who wished to please both parties. However I believe him when he said that the question of the landlords agreeing in advance to give consent was not recorded because the landlords insisted that it should not be. The evidence of these two clerks convinces me beyond doubt that when the Tenancy Agreement was signed by the defendant he did so in the knowledge that Clause 2(j) had not been deleted from it and that the plaintiffs would not agree to its deletion. This conviction is confirmed by the admitted fact that the first defendant when he left the offices of Messrs. Yung, Yu, Yuen & Co. that day brought with him a photostat of the Tenancy Agreement as it had been completed by the first and third plaintiffs and himself. He says that his reason for doing this was so that he could show it to any prospective sub-tenant. This I do not believe. His evidence that he did not show it to anybody else or take steps to have it explained to him is beyond the bounds of my credulity. In this connection it is to be noted that the agreement was not finally completed until the 10th of December i.e. 4 days later when the second plaintiff rent along to the offices of Yung, Yu, Yuen & Co. to sign it. The first defendant must have known that the second plaintiff was an essential party to the Tenancy Agreement for the first plaintiff had said that she would ask him to give consent in writing to subletting.

4. On the 10th December 1976 Mr. CHAN Bing-chiu attended the offices of Messrs. Yung, Yu, Yuen & Co. and he signed the Tenancy Agreement and thereafter what happened was that Mr. Philip Yuen signed his name as having witnessed the signatures of all four persons and Mr. Lawrence Loo signed as having interpreted the document to them. This was quite wrong and Mr. Yuen's excuse that he had seen all the parties in the office was quite unacceptable. On the 6th of December 1976 there had been paid to the plaintiffs $2,300 being one month's rent and a further sum of $2,300 security for due payment of rent and charges for electricity etc. At or about this time there was also paid a sum of $6,000. This is referred to on the back of the original receipt as "construction money". In fact I am satisfied that this sum was paid to the plaintiffs by the aunt of the first defendant to enable them to meet the expenses of putting up two iron gates to the premises and of decorating it. These gates were in course of erection when the first defendant visited the promises on the 4th December 1976 and he agreed to defray the charges of the decorator. The plaintiffs produced the decorator's receipt for the sum of $6,000 dated the 12th December 1976. Indeed at the outset of the case counsel for the first defendant applied to delete from paragraph 4a the Phrase "(ii) $6,000 by way of premium." On opening his defence he applied to amend paragraph 4(a)(i) of the defence by deletion of the words "$2,300 as additional security money over and above". The effect of these deletions was to have paragraph 4(a) of the defence read:

"The first defendant says that prior to the execution of the said Tenancy Agreement dated 6th December, 1976, the Plaintiffs had expressly agreed to allow the first Defendant to underlet or sublet the said premises or any part thereof in consideration of the 1st Defendant paying to the Plaintiffs the following further sums:

And in effect amount to an averment that the first defendant had paid only the sums required of him in the Tenancy Agreement. There was no consideration for any agreement to delete Clause 2(j). Neither CHAN Hing nor Madam TAM Ying-chun was the kind of person who would have given away something for nothing. It was, of course, quite illogical for Mr. YAM Kam-hung to have inserted the words "the whole of" before the words "the premises" while leaving in the words "or any part of them" and if it was the first defendant's case that what had been agreed was that if permission was sought to a sub-tenancy of part of the premises it would not be withheld I might well have been tempted to believe him. That however was not his case nor was it the evidence of his aunt. Their evidence was that it was agreed that the clause should be deleted in its entirety. That was quite certainly not the agreement. Not only did the first defendant fail to provide the very high standard of proof required for rectification in Earl v. Hector Whaling⁽¹⁾ but I was quite convinced of the contrary, although I might have been prevailed upon to accept that some amendment to Clause 2(j) on the basis that the insertion of a clause to the effect that consent to a subletting was not to be unreasonably withheld was called for. I regard as a direct result of Mr. Philip Yuen having signed as a witness of the signatures of the parties to the Tenancy Agreement the remarkable correspondence that ensued when the solicitors for the plaintiffs forfeited the tenancy. The correspondence was as follows: on the 14th May 1977 Messrs. Tsang and Chau gave notice of forfeiture to the first defendant with carbon copies to the second and third defendants. On the 7th of June 1977 Messrs. Edmund Cheung and Co. for the first defendant wrote to Messrs. Yung, Yu, Yuen & Co. to the effect that they were instructed that it had been expressly agreed between the parties that the first defendant should be at liberty to sublet and that instructions had been given both by the plaintiffs and their client to

"your staff member(s) (sic) to incorporate such agreement in the tenancy agreement but that this agreement was inadvertently omitted from the tenancy agreement". (my emphasis)

They requested Messrs. Yung, Yu, Yuen & Co. to confirm this and to give them "the name(s) (sic) of your staff member(s) (sic) who took instructions." I would pause to note that in this letter Messrs. Edmund Cheung & Co. do not seem to be too certain as to how many persons were involved in taking instructions and secondly that they were complaining of an omission from the Tenancy Agreement and not the inclusion of Clause 2(j). Messrs. Yung, Yu, Yuen & Co. repled on the 8th of June 1977 stating:

"We confirm that prior to the execution of the tenancy agreement the landlords expressly agreed that the tenant should be at liberty to underlet or sublet the premises in question or any part thereof but they insisted that Clause 2(j) be allowed to remain."

They thereupon gave the name of Mr. YAM Kam-hung as the clerk who attended to the matter and who would be in a position to testify to the series of negotiations between the parties. On the 9th of June 1978 Messrs. Edmund Cheung & Co. wrote again to Yung, Yu, Yuen & Co.:

"We are instructed that before execution of the Tenancy Agreement, your Mr. Yam Kam-hung suggested that Clause 2(j) be deleted to which the landlords eventually agreed upon payment of an additional deposit of $2,300 by our client. This additional deposit was duly paid to the landlords."

This again was incorrect. No additional deposit was paid. A deposit of $2,300 was paid and a sum of $2,300 for rent in advance. Both these payments were required by the Tenancy Agreement as drafted. The letter in reply from Messrs. Yung, Yu, Yuen & Co. of the 15th June 1977 was equally inane. In it they say:

"We confirm that the additional deposit of $2,300 was paid by your client after the landlords agreed that the tenant should be at liberty to underlet or sublet the premises in question although they insisted that Clause 2(j) be allowed to remain."

I really find it very difficult to understand how any solicitors could send such a letter, particularly as both parties had been their clients. How they could say that the landlords on the one hand agreed that the tenant should be at liberty to sublet and on the other hand that the landlords insisted that Clause 2(j) be allowed to remain is quite impossible to understand. The conclusion to which the evidence compels me particularly when assessed in the light of this correspondence is that the parties agreed that Clause 2(j) should remain but only after an assurance that permission in writing to sublet would be readily forthcoming if sought. It was not sought nor obtained and therefore the subletting was in breach of agreement and gave rise to a right of forfeiture which was promptly exercised.

5. I have not been asked to exercise discretion and grant relief against that forfeiture and the question was not canvassed. What was argued was that the right (if any) to forfeiture was waived by acceptance of tent with knowledge of subletting. It was claimed firstly that the plaintiffs must have known of the subletting because the persons to whom parts of the premises were sublet put up large sign boards out side the premises immediately the subletting took place. The tenancy agreement was completed on the 10th December 1976. The first subletting took place on the 13th December 1976 and the second on the 20^th December 1976. Rent was accepted up to and including the 31st May 1977. In January, February and March rent was paid by the first defendant. In April and May it was paid by a Mr. LEE Sing-kwong by his personal cheque and it was the case for the plaintiffs that it was this that made them suspicious that subletting had taken place. They denied that they had seen the sign boards. I could not accept this denial. It was because of that that I reserved judgment. I have concluded that it is one thing to see sign boards and another thing to know that subletting has taken place. On the evidence as a whole I am satisfied that the plaintiffs did not know the identity of those occupying the premises or that they were sub-tenants when the rent for May was accepted. They were suspicious but not fixed with knowledge. After its receipt they went to the Business Registry and found that the first defendant was in no way connected with the second defendant. They were unable to secure confirmation that he was not connected with the third defendant because this ...(illegible) was unregistered. When they discovered that he was not concerned with the second defendant they immediately issued proceedings.

6. The defendants also gave evidence that the third plaintiff, Madam TAM Ying-chun, was present when the first sub-tenancy was completed. They said she came by chance to the premises, walked in and was present when the document was signed. This was put to her she denied it. It was suggested to her that she had not been notified but seeing a number of people there had come to see what was happening and did not raise any objection when she found out that part of the premises was in process of being sublet but told the aunt of the first defendant not to sublet for a longer period than the term that had been granted and asked for a copy of the agreement. It was further put to her that she got a copy and returned it. This she denied. Both the first defendant and his aunt put forward this case. I found them to be untruthful witnesses. Their disregard for the truth was manifested by the fact that they maintained that the premises were originally required by the first defendant so that he might carry on a tailoring business which the aunt was to subsidize. That they claimed was the whole reason for taking the tenancy and yet within three days of having done so they had entered into the first subletting and in 10 days the second The first defendant had never tried to carry on business in the premises it was his case that the argument in the office of Yung, Yu, Yuen & Co. about subletting had arisen because of his fear that his business would not be a success so that he might find himself be unable to pay the rent and would need to sublet it. I am driven to conclude that the first defendant never intended to carry on business in the premises for he says that he put up posters in the premises offering "shop space to let". If he did put up such posters he must have done so on the day after the tenancy was signed by the second plaintiff on the 10th December for he said that it was on the 12th December that the second defendant came and asked him to let the premises to him. He said the landlady was there on the 13th December when the first sub-tenant signed and she said nothing at the time but later she said that he was not to let the premises out for longer than the period he was renting them from her. His aunt gave similar evidence but added the grace note that the landlady was right behind her when the sub-tenancy was signed and indeed after its execution was finished had said "your agreement with the sub-tenant should not exceed the term I gave you." If this had happened one would have imagined that the sub-tenant would have given evidence on the point. Finally there was evidence on this point of Mr. LEE Sing-kwong, the man who had paid the rent for the months of April and May. He had been in court throughout the time that the aunt of the first defendant was giving evidence. I must confess to a considerable degree of impatience with this witness. It was obvious to me from the word "go" that the time he had spent in court listening to the evidence of the aunt had not been wasted. The result of my impatience was, I fear, that I took the examination of the witness out of the hands of the counsel for the first defendant, but managed to restrain my impatience so as not to ask him anything in the nature of a leading or trap question. He told me that he just "happened" to be there when the first sub-tenant signed and he gave the date unhesitatingly as the 13th December 1976. I do not see how he could have remembered the date of his own recollection. Further he had acted as agent for the first defendant in payment of the rent so that he could not be regarded as an independent witness. It was noteworthy that the evidence of these witnesses was in no way supported by the sub-tenant in question. I accept the evidence of Madam TAM Ying-chun unreservedly and hold that the plaintiffs have not waived the terms of Clause 2(j). The first defendant has sublet the entirety of the premises within ten days of the original grant to him and has produced no consent in writing so to do. Since there is no claim before me for relief against forfeiture I cannot grant relief but even if I could having regard to the way in which the first defendant conducted his case I should not do so. From the outset he sought to deceive the plaintiffs. He always intended to sublet the entire premises. The plaintiffs are entitled to an order firstly as against the first defendant for possession of the premises; secondly for a declaration that the sum of $2,300 deposited be forfeited to the plaintiffs and for mesne profits at the rate of $2,300 per month from the 1st June 1977 to the date on which vacant possession is delivered up to them with costs. I have considerable sympathy for the second and third defendants but must make an order against them for possession and costs.

Representation:

Mr. Keven Shuen (Tsang & Chau) for plaintiff.

Mr. Baretto (Edmund Cheung & Co.) for 1st defendant.

Mr. David Yam (Ho & Wong) for 2nd & 3rd Defendants.

(1) (1961) 1 Lloyd's List Law Reports 459 at p.468.