Shing Shun Hang Land Investment Co Ltd v. Siu Kwong Hong Ltd

HCA001779/1973

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1779 OF 1973

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Coram: Li, J.

Date of Judgment: 3rd July, 1974 at 3.55 p.m.

Present: A. Li (P.K.H. Wong & Co.) for plaintiff

P. Yu and H.Y. Leung (W.I. Cheung & Co.) for defendant

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JUDGMENT

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1. This is a claim by the Shing Shun Hang Land Investment Company Limited (hereinafter referred to as "the plaintiff") against Siu Kwong Hong Limited (hereinafter referred to as "the defendant") for possession of the premises known as No.130 Gloucester Road, Ground Floor (hereinafter referred to as "the suit premises").

2. The plaintiff is, at the material time of this action, the registered owner of the suit premises. The defendant is a tenant of the suit premises by virtue of a tenancy agreement signed between the defendant and the plaintiff's predecessor in title known as Wong Fook Wing by her Attorney named Wong Liu Oi Chuk (hereinafter referred to as "the Attorney") dated the 18th of May, 1972 for a term of one year starting from the 9th April, 1972. The written tenancy agreement is produced as an exhibit in page 1 to 8 of the agreed bundle produced by the plaintiff.

3. Some time in January, 1973 the plaintiff purchased the suit premises from the plaintiff's predecessor in title by virtue of an agreement of sale which is exhibited in page 9 to 15 of the agreed bundle produced by the plaintiff. The tenancy agreement was approved by the Tenancy Tribunal in Application No, 139 of 1972 under the Landlord and Tenants Ordinance, Cap.255. The suit premises is controlled premises, in other words it is part of a pre-war building. The plaintiff, having acquired and completed the purchase of the suit premises, was anxiously waiting for the defendant to vacate the premises on expiration of the tenancy agreement. However, the defendant refused to move out by the 8th of April, 1973 despite repeated requests. The defendant claimed protection. Hence, this action.

4. The plaintiff's case is based on the tenancy agreement of their predecessor in title, especially on Clauses 4(e) and 4(f) of the agreement. Clause 4(e) of the tenancy agreement provides that:-

"The Tenant hereby agrees that the provisions of the Landlord and Tenants Ordinance Cap.255 of The Laws of Hong Kong has been explained to him and that he agrees to deprive himself of the protection against ejectment afforded him by the said Ordinance and any subsequent amendments thereto or any Ordinance enacted in place thereof and upon the expiration or termination of this agreement the Tenant shall deliver up vacant possession of the said premises to the Landlady."

Clause 4(f) provides that:-

"The Tenant hereby admits that no key money, fine, construction fees or premium has been paid to the Landlady to procure this tenancy."

The plaintiff relies on section 28 of the Landlord and Tenant (Consolidation) Ordinance, Cap.7, which re-enacts the previous Landlord and Tenants Ordinance which provides that:-

"Where a landlord and a tenant or prospective tenant desire to enter into a tenancy agreement in respect of any premises for a term certain not exceeding five years at a rent in excess of the permitted rent for such premises, they may make a joint application to a tenancy tribunal for approval of the terms of the proposed agreement, and notwithstanding anything contained in this Part, the tribunal shall give its approval if it is satisfied that the proposed agreement -

The plaintiff also relies on the provision of section 22 of the Landlord and Tenant (Consolidation) Ordinance which provides that:-

5. The plaintiff's case is that no key money had been paid, as it was expressly admitted by the defendant when he signed the tenancy Agreement, and that defendant deprived himself of any protection against ejectment by virtue of the Landlord and Tenants Ordinance.

6. The defendant's case is that whereas the tenancy agreement was signed between the defendant and the attorney of the plaintiff's predecessor in title, key money had in fact been paid to the plaintiff's predecessor in title through the attorney since 1957 and in particular in respect of the tenancy agreement dated the 18th of May, 1972. In fact, some time in March or April, 1972, negotiation took place and as a result a sum of $10,500 was paid over to the attorney for the account of the plaintiff's predecessor in title in order to obtain the tenancy agreement dated the 18th of May 1972 for one year. As such the tenancy agreement is unenforceable against him and the defendant is therefore a protected tenant in controlled premises.

7. Having regard to the pleadings as subsequently agreed to by counsel for the parties, I find that there are only two issues involved. First of all, whether evidence of payment of key money may be adduced or may be rejected as extrinsic evidence to vary the terms of a contract, and secondly, in the event of such evidence being allowed whether key money had in fact been paid. As a matter of convenience, learned counsel for the parties agree that such evidence may be heard by me subject to the plaintiff's objection that extrinsic evidence may not be allowed to contradict the terms of an agreement. With regard to the first issue, namely, whether extrinsic evidence may be called to contradict the written agreement, namely, the tenancy agreement, in particular Clause 4(f) of the Tenancy Agreement, Exhibit 1, I am indebted to counsel for both parties for their lucid argument citing the authorities in support. Learned counsel for the defendant, Mr. Yu, justifies the admissibility of such evidence on the ground that this is not a matter of varying a contract but a matter which the court should enquire into because a point of illegality has been raised.

8. Section 15 of the Landlord and Tenant (Consolidation) Ordinance provides that:-

This, I may observe, is obviously a provision introduced in the Landlord and Tenants Ordinance for the protection of tenants of controlled premises. As such, it is contended that such extrinsic evidence is admissible to show key money had been received. First of all, he cites two text books (first in the well-known book of Chitty on Contracts, 23rd Edition, at paragraph 654) to the effect that:-

"Extrinsic evidence will always be admitted to defeat a deed or written contract on the ground of fraud, illegality, misrepresentation, mistake or duress. Also in the application of equitable remedies such as specific performance or the refusal thereof, rectification, or rescission, extrinsic evidence will be admitted to prove the grounds upon which relief is sought."

There is also the passage in 8 Halsbury's Laws, Simonds Edition, in paragraph 255 which reads that:-

"Where there is nothing on the face of a contract to show that it is illegal, extrinsic evidence is admissible to prove the illegality either of the consideration for the promise or of the purpose for which the contract was made, even if the contract is under seal. A party to a written contract in which the illegality does not appear on the face of the document is not bound to wait until the instrument is used against him, but may institute an action to have the instrument delivered up to be cancelled."

Then there is this case of Chan Yan Dun v. Ho Chow Kwong⁽¹⁾ in which Judge Mills-Owens, as he then was, had this to say at page 113:-

"Now with regard to transactions giving rise to disputes as to the legal relationship between the parties it has been laid down that if the transaction is an oral one, then the question as to what is the true legal relationship between the parties is a question of fact, but that if the transaction is reduced to writing then that question is largely one of the construction of the written instrument as a matter of law. But that does not appear to me to prevent a Court from inquiring whether the written instrument in fact represents the real agreement between the parties. Such an inquiry has been undertaken in numerous cases. Neither does the rule that oral evidence is inadmissible to vary or contradict a written instrument prevent such an inquiry; it is one of the well-recognized exceptions to that rule that oral evidence is admissible to show the real nature of the transaction, to show that whilst in form it is one thing, in substance it is something different. I conclude therefore that it is open to me to inquire whether the agreement is, as the defence allege, a sham or otherwise not a true representation of the real agreement between the parties."

9. Mr. Yu seeks to refer me to one of my own decisions in the District Court in the year 1964 in the case of Kwan Yan-sang v. Yue Sang trading as Yue Sang Tailor and against Choy Yui trading as Chung Shing Electrical Engineers⁽²⁾. In that case, I did remark that:-

"I am not inclined to admit extrinsic evidence to contradict the signed document. Even if I were wrong ....."

However, I went on to consider the evidence adduced before me. The evidence was that despite written denial of the tenants they did pay key money. Indeed, solicitors for the parties in that case never suggested that I should not admit the evidence. In fact they urged me to admit the evidence and to consider the effect of the evidence on that point. Thus any remark was made by me without the benefit of any argument by counsel and I consider it as obiter dictum and probably wrong. Mr. Yu contends that evidence of key money must be admitted so that I can enquire into the whole matter whether there is an illegality in the contract and if there is, such contract is unenforceable.

10. Mr. Li, learned counsel for the plaintiff, argues strongly that extrinsic evidence is admissible only to show illegality for two of the reasons. Firstly if the action is founded not on the contract but is founded on some statutory protection, then extrinsic evidence may be admitted to prove the infringement of the provision of statutes; and he cites in support of this contention the case of Woods v. Wise⁽³⁾ in which the learned Master of the Rolls said that:-

"There was a good deal of discussion of the question whether it was permissible for the court to hear extrinsic evidence of the bargain made, or whether the court in this matter was confined to the deed. It is convenient for me to deal first with that point, and I conclude that extrinsic evidence was clearly admissible, though the result of so concluding is far from decisive of the case. I note that this is not an action on the deed; the question here is whether the plaintiff has a statutory right of action under section 2(5) of the Act of 1949. Moreover, if she has, then prima facie the defendant has done that which was illegal, and for which he is liable to criminal proceedings. As a matter of principle, therefore, evidence must be admissible to prove the true nature of the transaction; but, further, the evidence is required not to vary the deed, but with a view to explaining and proving what was in truth the consideration. For this purpose extrinsic evidence has always been admissible."

He seeks to rely on the fact that in the case of Woods v. Wise, the plaintiff was relying on certain statutory provision and attempted to sue for the recovery of a premium paid. He also relies on the fact that in Woods' case the contract between the landlord and the tenant made no reference to the term "key money" or "premium". He also cites part of the judgment of Lord Justice Romer, as he then was, at page 54:-

"As a preliminary to this question the point arises whether the plaintiff's claim to recover this sum as being an illegal premium falls to be determined solely according to the terms of the lease, or whether extrinsic evidence as to the intention of the parties is also admissible. The county court judge admitted oral and other evidence of intention, and in my opinion he was plainly right in doing so. As he pointed out, the plaintiff is in substance charging the defendant with committing a criminal offence, and the defendant is, in my judgment, clearly entitled to prove that the agreement between himself and the plaintiff was innocent, and to show what the mutual intention of the parties really was. If this were not so, a mere copying error of a clerk in a document might result in a quite unwarranted finding of criminal intent on the part of the persons who had executed if - for example, the mistaken substitution of £250 for £150 in an agreement for purchase of some article of which the maximum controlled price is the latter figure. Moreover, the extrinsic evidence is not sought to be introduced in the present case with a view to contradicting anything that is expressed in the lease, but in order to show what was the true nature of the £850, which, it is to be observed, is nowhere described in the lease as a 'premium'."

Secondly as a corollary to these dicta he founds his point, that even in the point of illegality as an exception for the admission of extrinsic evidence, if a written document contains express terms that an act has not been done or a thing is not the thing dexribed, then extrinsic evidence is inadmissible to contradict it. In the present case, the defendant plainly admitts in clause 4(f) of the tenancy agreement that no key money or premium had been paid. While I appreciate Mr. Li's argument, I must confess that I cannot accede to this contention. If a point of illegality is raised, the court should enquire into the whole transaction and see what the form is and what the real substance is. That can only be done by considering the evidence despite written document.

11. In the case of Woods and Wise, admittedly it is only an action claiming statutory protection by recovery of the premium paid. However, the court was inclined to admit extrinsic evidence so as to enable the defendant, the landlord, to prove that what was alleged to be premium was in fact no premium but rent paid in advance. In the case before my brother, Mills-Owens, he plainly said that such evidence is admissible. In the present case although the defendant made an express admission in the tenancy agreement that no key money was paid yet he is entitled to adduce evidence to show that an illegal act had been committed by the plaintiff's predecessor in title. If in fact key money had been paid the tenancy agreement is tainted with illegality and as such unenforceable. The plaintiff may be relying entitely on the tenancy agreement to succeed in his action. The defendant need not rely completely on the tenancy agreement. He has been in occupation of controlled premises and what he is trying to resist the enforcement of the tenancy agreement by proving an act of illegality on the plaintiff's predecessor in title. As a protected tenant in controlled premises he is not required to vacate the premises when the lease has expired.

12. In view of the circumstances I rule that evidence of payment of key money is admissible in this case. I will now proceed to consider the evidence. The evidence in this case is that the defendant has been in occupation of the premises since 1957. I do not think there is any challenge as to that. It is also alleged that from time to time since 1957 the defendant had to pay the plaintiff's predecessor in title various sums of key money in order to obtain a renewal of the tenancy once it expired. In 1972 the defendant paid a sum of $10,500 in form of a cash cheque was paid to the attorney of the plaintiff's predecessor in title before the defendant could obtain the present tenancy agreement. Admittedly, there is no evidence that the plaintiff's predecessor in title directly received that cheque. However, there is evidence that the cheque was paid into Mr. Wong Yuk Tong's account. The attorney is the mother of the plaintiff's predecessor in title; Mr. Wong Yuk-tong is the brother of the plaintiff's predecessor in title. Whatever payment that was made before 1972 have no connection with the present tenancy agreement. However, it may go to show that, as a course of conduct, the defendant paid the money. But that is not my concern. My concern is whether the $10,500 was paid in consideration of obtaining this tenancy agreement in 1972. Mr. Wong Tsai-to, Director of the defendant company, said that the cheque in the sum of $10,500 was drawn on the Nangyang Bank on the defendant company account. The cheque found its way to the account of Mr. Wong Yuk-tong, the brother of the plaintiff's predecessor in title. There is evidence that this cheque was handed by Mr. Chow of the defendant company to the attorney of the plaintiff's predecessor in title.

13. On the other hand, the plaintiff has adduced no evidence other than the approved agreement. It relies entirely on clause 4(f) of that agreement. It is not for the court to direct what evidence is to be adduced by the parties. But the court is entitled to observe that since there is allegation of payment of key money by the defendant one would expect that the most cogent evidence may well be obtained from either the plaintiff's predecessor in title herself or the attorney. Yet neither was called as a witness to refute such allegation. On the balance of probability I find on the evidence that key money had been paid in order to obtain the tenancy agreement in 1972. In passing I might observe that according to the defendant's evidence the clause in the tenancy agreement, clause 4(f), was deliberately put in order to mislead the Tenancy Tribunal into approving such a tenancy agreement. This is a case which would ring true to say that "the law is an ass". The Legislature has seen fit to protect tenants where the tenants require and need no protection at all. In fact out of this whole transaction an innocent person has suffered, namely, the plaintiff. As the law stands, there is nothing the court can do about it. When I, of my own initiative, raised the point with Mr. Yu, whether a person in such position is allowed to approbate and reprobate. He cites me a case which furnished a complete answer in the case of Bonaparte v. Bonaparte⁽⁴⁾ in which a person who suppressed material facts before the court has made no effect to subsequent proceedings.

14. In the circumstance as I have found that extrinsic evidence is admissible and that in fact key money have been paid I have to dismiss the plaintiff's action with costs.

Representation:

A. Li (P.K.H. Wong & Co.) for plaintiff

P. Yu and H.Y. Leung (W.I. Cheung & Co.) for defendant

(1) (1957) District Court Law Reports, p.110.

(2) (1964) District Court Law Reports, p.232.

(3) (1955) 2 Queen's Bench Division, p.29 at p.39

(4) (1892) Probate p.402.