Victor Warne & Co (HK) Ltd v. Eda Realty Ltd

HCA003053/1973

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 3053 OF 1973

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Coram: Li, J.

Date of Judgment: 12th November, 1973 at 3.00 p.m.

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JUDGMENT

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1. This is an action for interpretation of the terms of a Tenancy Agreement dated 3rd April 1968. The facts of the case are set out in a statement of agreed facts signed by solicitors for both parties and I shall not repeat them in detail except for one or two sallient features for the purposes of this case. If an appeal is contemplated, needless to say, the statement of agreed facts will be on record and will set out the true position.

2. On the 3rd April, 1968 the plaintiff and defendant signed a Tenancy Agreement in the terms as stated in document No. 1 of the agreed bundle of documents. The effect of this agreement is that the defendant let and the plaintiff takes a lease of the premises described therein on certain terms. The rent per month, exclusive of rates, is 3,900. The lease is to last for one year with an option to renew for two years and another option to renew for three years. The options were duly exercised in the year 1969 and 1971. Thus, there is no question that the tenant occupying in breach of agreement. I further add that on exercise of the option the original terms of the agreement remained the same.

3. Clause 2(m) of this agreement provides that the tenant agrees:

"To pay and discharge punctually during the said term of tenancy all water, gas and electricity charges and all rates and taxes and other outgoings now or at any time hereafter chargeable in respect of the said premises save and except only the Crown Rent and Property Tax."

Clause 2(q) provides that the tenant agrees that:

"At all times during the said term to keep such lavatories and water closets and all the apparatus and equipment in connection therewith as will be allocated to the use of the Tenant whether exclusively or in common with others in a good, clean, and tenantable state and in proper repair and condition to the satisfaction of the Landlords and Government Authorities."

There is added to this agreement, which is in printed form, an addendum. Clause 3(d) which provides that the Landlord agrees with the Tenant that the:

"Rental of H.K. $3, 900.00 per month with rates to be paid by the tenants but based on the actual rental paid of H.K. $3,900."

4. Clause 3(e) provides that:

"Lease one year in the first instance renewable at tenants' option for a second period of two years and finally for a third period of three years also at tenants' option at the same rental of H.K. $3,900."

5. The tenant went into occupation as agreed and paid the rent regularly and the rates payable at $1,989 per quarter. About 1971 or earlier, the Government - the Rating and Valuation Department - saw fit to revise the rates or rate payable in respect of the same set of premises. This was raised to a much more substantial sum to the amount of $3,814.13 per quarter. I shall refer to the $1,989 as the old rate and the $3,814.13 as the new rate. The defendant started to claim the new rate from the plaintiff in July, 1971 for the quarter ending 30th September, 1971. That was paid by plaintiff without any dispute. Later on in October, the defendant sent a demand note and claimed the old rate for the last quarter of 1971.That was complied with by the plaintiff but the defendant rejected the payment. Since then for the whole of the year 1972 practically, there have been demands by the defendant on the plaintiff to pay the new rate per quarter. But every time the plaintiff declined to pay the new rate but tendered payment of the old rate.

6. A further trouble arose is that in the year 1971 there was incorporated an owners' associated by the name of the Tsim Sha Tsui Mansion Owners' Fraternity Association which was incorporated under the provisions of the Multi-storey Buildings (Owners Incorporation) Ordinance. The management of the building in which the suit premises were situated were vested in this association. They started to ask for payment of maintenance charges. I should add that up to that time neither the defendant nor the plaintiff had paid any maintenance charges. Each was under the impression that such charges had been paid by the other. As a result of correspondence there were some forms of litigation. On the reading of the Multi-storey Buildings (Owners Incorporation) Ordinance, the plaintiff felt that as occupier they must discharge the maintenance charges owing to this association. But he claims reimbursement from the defendant. Thus, on the 29th September, 1972, the plaintiff paid a sum of $5,160 in respect of maintenance charges for the months April to July, 1971 inclusive. On the 5th November, 1972 the plaintiff paid another $2,596 in respect of the maintenance charges for the months of August September, 1971 inclusive. Further, the Tsim Sha Tsui Mansion Owners Fraternity Association demanded and received payment in the sum of $3,440 as Contingency Funds. Such funds the Association was entitled, under the provisions of the aforesaid Ordinance, to maintain and chargeable on the occupier.

7. The plaintiff also seeks to recover reimbursement from the defendant these three sums which they have paid to the Tsim Sha Tsui Mansion Owners' Fraternity Association to the total of $11,180. For this reason the plaintiffs claim a declaration that the plaintiff's liability with regard to the rates is to be governed by Clause 3(d) of the Tenancy Agreement; a declaration that the defendants are responsible for all such sums of maintenance charges, as may be demanded in respect of the premises occupied by the plaintiff, by the Incorporated Owners of Tsim Sha Tsui Mansion; a declaration that the defendant be responsible or otherwise to indemnify the plaintiff in respect of the said Contingency Funds and the refund of $11,180 for the maintenance charges.

8. The defendants, while admitting the terms of the Tenancy Agreement, contend that it was the tenant's liability to pay the rates chargeable from time to time; to pay the maintenance charges and Contingency Funds. As the plaintiff disputed their liability and refused to tender anything more than the old rate per quarter, they were in breach of the provisions of the Tenancy Agreement, namely Clause 4(a) of the Agreement. The defendant, therefore, is entitled to re-enter and regain possession of the premises. The defendant, having for two quarters paid the new rates for and on behalf of the plaintiff to the sum of $6,974.26 viz the fourth quarter of 1971 and the first quarter of 1972, also counterclaim for possession of the premises; the $6,974.26; a declaration that the defendants are entitled to forfeit $7,800 of the deposit paid by the plaintiff and a mesne profit at the rate of $30,000 per month as from the 1st February, 1972 until the plaintiffs vacate of the premises. To this counterclaim the plaintiff has joined issue with the defendant.

9. There is very little evidence called on the part of the plaintiffs, evidence was given by their manager that from record it appeared that when the plaintiff paid the rates at $3,814.13 in respect of the third quarter of the year 1971, it was a payment by mistake. He hastened to point out that in respect of the fourth quarter, the defendants only demanded $1,989 for rates. Similarly, the defence called evidence that it was merely a mistake to send a demand note for $1,989 in respect of rates for the fourth quarter of 1971. In fact, the plaintiff paid $3,814.13 in respect of the third quarter of 1971 without any query. Thus, it was a matter of mutual mistake on both parties. I do not think it carries the matter very far.

10. The basic question, as I have said, is an interpretation of the terms of the Tenancy Agreement taken as a whole. Learned Counsel for the plaintiff contends that whereas the whole of the Tenancy Agreement is in printed form except the addendum. Clause 2(m) of the Tenancy Agreement is qualified by Clause 3(d) of the agreement which is part of the addendum. As the rate of $1,989 per quarter is based on calculation of the monthly rental of $3,900, therefore, all the plaintiff is obliged to pay is that sum and that sum alone - namely, the old rate.

11. There is an ambiguity in the conflict of clauses 2(m) and 3(d). The cardinal principle of interpretation of a document is that the written words should prevail. There is another principle in the interpretation of a lease that such document is to be construed against the grantor. Therefore if there is any conflict in these two clauses, it should be interpreted against the defendant.

12. Mr. Asome goes on to contend now that the Tenancy Agreement provides for no payment of maintenance charges. This charge is levied by a corporation of the owners incorporated under the provisions of the Multi-storey Buildings (Owners Incorporation) Ordinance. He further claims that sub-section 4 of section 23 of the Multi-storey Buildings (Owners Incorporation) Ordinance provides that:

"If an occupier of a flat has paid an amount in accordance with this section -"

namely, for maintenance charges and other charges,

"that amount may, subject to the terms on which he occupies the flat, be deducted by him from the rent or other charge due in respect of his occupation of the flat."

For this reason we still have to go back to the interpretation of the Tenancy Agreement to find out whether the plaintiff is liable to pay such maintenance charges. He cites to me a list of authorities. I do not think it is necessary to consider them in detail. It is sufficient to say that all the authorities support the two propositions he put forward, namely, that for an interpretation of a document to resolve any ambiguity, the written words should prevail and that the lease is to be construed against the grantor.

13. In reply to this contention, Mr. Eddis, learned counsel for the defendant, submits there there is no ambiguity at all, the wording of Clause 2(m) in the Tenancy Agreement is quite plain and Clause 3(d) makes no sense at all. Thus there is actually no conflict between the two and it is quite abundantly clear that Clause 2(m) is to apply. He further strengthens his argument by saying that at the time when the last option was exercised the defendant wrote to the plaintiff and asked whether they intended to exercise the option. Among other things, the defendants, in their letter dated 14th June, 1971 in document No.5 of the agreed bundle said this:

"Should the option be exercised, we are to inform you that the monthly rent will remain at $3,900 subject to the same terms and conditions in the said Tenancy Agreement contained and subject particularly to Clause 2(m) of the same in that you are required to pay and discharge all rates and taxes and other outgoings which include maintenance charges chargeable in respect of the premises save and except only the Crown Rent and Property Tax."

To this, the plaintiff replied on the 21st June in these terms in document 6:

"We confirm that we hereby exercise the option contained in the above agreement and are renewing the above Tenancy Agreement for a further period of three years on the same terms and conditions as hitherto, without such being amended or varied in any manner."

By exchange of letters the option was exercised. The plaintiff fully realised that they were liable to pay maintenance charges and that must be read as part of the contract between the parties. There was no doubt that the plaintiff was liable for maintenance charges as well as the variation in rates.

14. He further contends that since the plaintiff has declined to comply with the terms of the Tenancy Agreement they has committed a breach of covenant and therefore the Landlord is entitled to re-entry to terminate the lease as from the end of January, 1972.

15. In the interpretation of a document, one must read every word of the document so as of gather the intentions of the parties. On the one hand, it is well to say that one must give effect to the written words which prevail against the printed words. On the other hand, one must give meaning to the words that are put in the Tenancy Agreement.

16. I shall deal with the question about the rates first. I cannot find the exchange of letters - in June, 1971 when the option was exercised can be of any help to me. They are all subject to the same terms of the Tenancy Agreement. Looking at Clauses 3(d) and 3(e) I confess that I must give some meaning to the written words. They are additions to Clause 3(a) and 3(b). There is, apparently, a conflict between Clause 2(m) and Clause 3(d) in this way: whereas Clause 2(m) provides that the tenant is 'to pay tax now or at any time hereafter chargeable'. Clause 3(d) limits that with the words "but based on the actual rental paid of HK$3,900". There is no evidence adduced before me whether the old rates charged had any relation with the rental per month. But knowing the provisions of the Rating and Valuation Ordinance and knowing that the $3,900 would be a factor when one computes the annual value of the property, one can only come to the conclusion that the old rate was based on this $3,900. These are written words, and agreed to by the grantor of the tenancy. My opinion is that the written words prevail and that the Tenant's rates are limited. I can only gather the intention from the written document. The tenant's liability rests on the basis that it is to be worked out on the annual value of $3,900 per month rental. That is the rate for which the Tenant is liable.

17. The same, however, cannot be said for the maintenance charges. Admittedly, both parties had not done any act for the discharge of maintenance charges, yet, the wording in Cluase 2(m) is quite clear. The Tenant's liability is to pay 'other outgoings' apart from water, electricity and gas, 'now or at any time hereafter chargeable in respect of the said premises save and except only the Crown Rent and the Property Tax'. I do not have to go any further than this that the Tenant's liability is to pay all outgoings except Crown Rent and Property Tax at any time that may be chargeable. Indeed, there might have been no maintenance charges and therefore, he is not liable to pay. Indeed, there was no demand for maintenance charges or of any outgoings and therefore tenant did not pay. But once there is a demand it is the tenant's liability to discharge them. If the tenant feels that such maintenance fees are unjustifiable, excessive, it is for the tenant, either by themselves or through the defendant to take the matter up with the management or with the Owners' Association of the Tsim Sha Tsui Mansion. I will repeat the provision of Section 4 of the said Ordinance that:

"If the occupier of a flat has been paid an amount in accordance with this section that amount may, subject to the terms on which he occupies the flat, he deducted by him from the rent ....."

In view of the provision of Clause 2(m), there is no justification for the plaintiff to deduct any of the maintenance charges from the rent, such charges being their responsibility. Similarly, the Contingency Fund may be on the same basis as the maintenance charges. It is a charge or outgoing chargeable in respect of the same premises. There again, the tenant, the plaintiff cannot and will not be able to recover from the Landlord in accordance with the terms of the Tenancy Agreement.

18. Having decided these two points on the interpretation of this Tenancy Agreement, I can only come to the conclusion that the plaintiff's should have judgment in terms of paragraph A of the Prayer in that he shall have a declaration that their liability to rates is limited to what is contained in Clause 3(d) of the Tenancy Agreement and the rest of his claim must be dismissed.

19. As to the counterclaim, in view of my decision and interpretation of this Tenancy Agreement, the plaintiff has not committed any breach of covenant. The counterclaim for possession and for arrears of rates must be dismissed except for such amount for those two quarters at the rate of $1,989 each. Further, the defendant is not entitled in any way to forfeit the deposit of $7,800 or for mesne profits. There will be judgment to the defendant in the sum of $3,796 in respect of the rates for the last quarter of 1971 and the first quarter of 1972 and the rest of the counterclaim is dismissed.

Representation:

Mr. M. Asome (Messrs. Deacons) for Plaintiff

Mr. F. Eddis (Messrs. Lau, Chan & Ko) for Defendant.