Mui Lock v. Plenty Good Ltd.
Read the full judgment text of HCMP 621/1989 on BabelCite. This High Court CFI judgment was delivered on 19 September 1991.
1. The plaintiff, Mui Lock, claims against the defendant company possession of certain commercial premises in Wah Fu Estate ("the premises") which are currently used for carrying on the business of the Ho Ho Restaurant.
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HCMP000621/1989 1989, M.P. No. 621 IN THE SUPREME COURT OP HONG KONG HIGH COURT MISCELLANEOUS PROCEEDINGS ___________ BETWEEN
___________ Coram: The Hon. Mr. Justice Nazareth in Court Dates of Hearing: 6 -10 May, 13 - 17 May & 3 - 4 September 1991 Date of Delivery of Judgment: 19 September 1991 ___________ JUDGMENT ___________ 1. The plaintiff, Mui Lock, claims against the defendant company possession of certain commercial premises in Wah Fu Estate ("the premises") which are currently used for carrying on the business of the Ho Ho Restaurant. 2. The plaintiff has been in the restaurant business for nearly 20 years. In 1979 he obtained a lease of the premises from the Housing Authority and opened the Wah Hing Restaurant there. Later he got a firm to operate the restaurant for him under a management agreement. The arrangement was not a success and he closed down the restaurant about 2 years later and got rid of the staff with a view, he says, to replacing them and starting again. He adds that word got around and a Mr. Ng Chi Quan ("Mr. Ng") telephoned him. Mr. Ng was a very wealthy and successful restaurateur, so he went to see him. Mr. Ng, he says, suggested that a management company handle the business and that the plaintiff and his friends could profit from shares in the company. They arrived at a tentative agreement to form a management firm. After a few days they had a second meeting and then a third at which Mr. Ng introduced him to Cheung To Sang ("Mr. Cheung") as a businessman and restauranteur and full of drive. 3. Mr. Cheung went to inspect the Wah Hing Restaurant along with Mr. Ng and a Madam Ho, the plaintiff's sister-in-law, who was also a former employee of Mr. Ng's. Mr. Cheung thought the premises had potential and Mr. Ng that the remaining 5 year lease of the premises of which the plaintiff was assured would suffice to make a profit or a loss. There were further discussions embracing the shares in a proposed management company to be formed to operate the restaurant. The plaintiff adds that since he had spent some $1.6 million decorating and furnishing the restaurant, it was agreed that he should be paid for the use of the furniture, fittings and installations for the 5 years that remained of his lease, an amount of $550,000 that would be a non-refundable deposit. Ultimately, he says it was decided to go a solicitor, Mr. Edmund Chow to draw up the agreement. The plaintiff, Mr. Cheung, Madam Ho and Mr. Ng's son, Ng Wing Po who represented the latter went. The plaintiff says Mr. Chow listened to them and explained how he proposed to provide what was required and had the agreement drawn up and typed. While they were waiting he says, Mr. Cheung became concerned that he, the plaintiff, might not procure the renewal of the lease and that the matter was resolved by Mr. Chow drawing up a guarantee for the purpose. Then another member of Mr. Chow's staff explained the agreement and the guarantee and took them to another solicitor in Mr. Chow's firm before whom they signed the agreement. The plaintiff unequivocally maintained throughout that the agreement was a management agreement. The $550,000 was recompense for depreciation of the furniture, fittings and installations over the 5-year period and he would in addition snare in the profits of the management company via his 1/6th share in the company for which he paid $200,000. The other shares went 1 each to Mr. Cheung, to a brother of his, Cheung Chi Sang, to Madam He and the remaining 2 to Mr. Ng. It is not in dispute that the plaintiff was to remain the Housing Authority lessee since transfer or parting with possession was prohibited by the lease, and that likewise he was to continue to hold the liquor licence. 4. Following the signing of the management agreement and guarantee, the restaurant was renamed the Ho Ho Restaurant, extensively refurbished and has since been operated by the defendant management company. The plaintiff was named as the managing director and appointed to be one of the three managers. He says that notwithstanding his impressive designation, he was but a minor employee and that it was effectively Mr. Cheung who was in command. He received a salary of $12,000. However, he says, he became in time increasingly concerned about breaches of the lease and of statutory regulations which could endanger the renewal of the lease and expose him as licencee to prosecution. His complaints were ignored. His requests that the management agreement (which he claims expired in 1989) be replaced in terms more appropriate, were fobbed off by Mr. Cheung. So he caused his solicitor to demand vacant possession. The result was his dismissal as managing director and manager and loss of the salary he was paid. 5. His claim so far as now pursued is first, for vacant possession of the premises, and second for an injunction restraining the defendant and its servants and agents from entering the premises. 6. The defendant's defence in substance is that what was negotiated and agreed between the plaintiff and Mr. Ng and more particularly Mr. Cheung was the takeover i.e. the outright sale of the restaurant. It contends that in the presence of Mr. Edmund Chow the solicitor, a verbal agreement was reached between the plaintiff and the takeover parties whereby the latter would pay $550,000 for the purchase of the restaurant, furniture, equipment and fittings and, inter alia, the plaintiff would hold the tenancy of the premises for the benefit of the managing company, and renew the tenancy for another 3 years from 15th January 1984 until 15th January 1987 and thereafter as long as the landlord was prepared to do so. It avers that the written agreement did not "set out fully the true nature of the agreement". It asks for the agreement to be rectified:
I shall return to the other defences which it is not necessary to adumbrate at this point. 7. Mr. Ng died in 1987 or 1988, and the evidence for the defendant has been provided almost entirely by Mr. Cheung. Mr. Cheung is, as he himself says, more or less illiterate. He is now 48 years of age and entered the restaurant trade at the age of 14 as an on-the-job worker. He went to work for Mr. Ng when he was 22 years old and in time became a "master roasted meat cook'', and very experienced generally in the restaurant trade. In time he began to go into joint ventures with Mr. Ng and even started to own restaurants of his own. He now has an interest in no less than 13 restaurants, not to mention other companies and businesses. His success is a measure of his ability which was also apparent from his forceful personality. He readily asserted himself when in the witness box. 8. Mr. Cheung testified that he was brought into the matter by Mr. Ng, and that he inspected the premises and that there were discussions between him and Mr. Ng on the one side and the plaintiff on the other. It was agreed, he says, that the restaurant would be renamed the Ho Ho Restaurant and $1.4 million would be injected. Of this $550,000 ass to be the premium to the plaintiff for the transfer of all the fittings and the furniture, his licence and tenancy lease all of them. $150,000 was to be the Housing Authority deposit, and the balance was for renovation. A limited company was to be formed to take over the entire business including the licences. Then Mr. Ng had 2 solicitors look at the lease and both advised that it did not permit a transfer and that the scheme was not workable. Eventually Madam Ho suggested Mr. Edmund Chow. Mr. Cheung went along with Madam Ho and the plaintiff; Ng Wing Po came later. Mr. Cheung says that in Mr. Chow' s office the plaintiff was told his business was going to be bought out. However, the lease stipulated that the tenancy must be a proprietorship and so he asked Mr. Chow to tackle the matter. The solution Mr. Chow worked out was to prepare an agreement that the plaintiff would only be responsible for ensuring the availability of the lease for 5 years, that is renewing the 3-year option on the expiry of the 2-year period then remaining. Also the idea of a managing company he said came from Mr. Chow. 9. Mr. Chow prepared the agreement and it was typed while they waited. They then signed it before another solicitor. The idea of the guarantee to ensure that the plaintiff did take up the option to renew the lease came from his side; either Mr. Ng at one of the earlier meetings or he himself, he could not remember. 10. With that brief outline, which I think is sufficient to enable me to proceed to the issues, I turn to the main question i.e. which of the 2 versions is true. 11. Turning then to the plaintiff, I will say at once that I was impressed by his evidence, which was given in a restrained and convincing manner. In that regard it was apparent from the very outset that the action was likely to be determined by the credibility of the evidence of the main witnesses, and I accordingly paid particular attention to their demeanour. The plaintiff's account of the matter, which matter was rather more involved and protracted than might appear in the brief outline I have provided, was significantly consistent. He did not exaggerate, was not evasive and was prepared to concede points that did not appear to favour him. Above all, he was not shaken in his very lengthy and close cross-examination. 12. On the other hand, Mr. Cheung was vague and evasive about many matters and particularly details. His response to some important questions was not of what he knew, but discursive with insistence upon what should or must have been. His obvious strength of feeling about the plaintiff's action cast considerable doubt as to whether his evidence could be relied upon both in terms of veracity and objectivity. His reluctance to concede matters of obvious truth did not redound to his credit. 13. Also of assistance in assessing his credibility is his account of the visit to Mr. Edmund Chow's office on the occasion the management agreement and the guarantee were drawn up and executed. It is incredible, indeed little short of inconceivable, that having had the outright sale explained to him, as Mr. Cheung says he did, Mr. Chow would have drafted the management agreement to its manifest effect. Likewise having clearly endorsed and signed the management agreement to the effect that it was interpreted to the parties and it was highly improbable in the circumstances that the articled clerk failed to do so. 14. It is convenient at this point to turn to the management agreement and the guarantee. The management agreement, dated the 10th February 1982, recites the desire of the employer (the plaintiff) to change the name of the restaurant, the fact that he is the grantee of a tenancy by the Housing Authority of the premises to operate a restaurant for a period of five years from 16th January 1979 to 15th January 1984 with the option to renew for a further three years, and that it has been arranged for the manager (the defendant) to manage the restaurant for the employer on the terms provided in the agreement, but that all the restaurant licences would remain in the name of the employer. The more relevant clauses are the following:-
15. The guarantee is also dated the 10th February 1982. Its recitals refer to the plaintiff's five year tenancy and option to renew for a further three years, to the appointment of the defendant as manager to manage the restaurant by the management agreement and include the following paragraphs -
16. It concludes with the covenant by the plaintiff to pay $1m to the defendant -
17. It is plain that both the management agreement and the guarantee could, without breaching the tenancy restriction on transfer, easily have been drafted to endure beyond the initial five year and the three year renewal periods, for so long as the Housing Authority renewed the lease, had an outright sale been contemplated with an express undertaking by the plaintiff to apply for all further renewals on behalf of the defendant as contended by Mr. Cheung. The tenor of both the management agreement and of the guarantee are inconsistent with Mr. Cheung's evidence in that regard. Even if Mr. Cheung left the matter of the subletting restriction in the Housing Authority lease to be overcome by Mr. Chow in his own legal way, the defendant's side, if not Mr. Cheung himself (as I find) having become concerned to provide against the possibility of the plaintiff not renewing the lease for the benefit of the defendant, should certainly have been equally concerned not to have that safeguard limited to only the first five years. 18. Mr. Cheung's initial attempt to meet this general point by claiming that the agreement was not explained to him was another indication of his unreliability and lack of veracity; I am satisfied that both were explained to him before he signed them. 19. Mr. Cheung's evidence that the plaintiff did not say anything to Mr. Chow is inconsistent with the defendant's averment in its defence that an agreement was reached in Mr. Chow's presence. 20. I accept the plaintiff's evidence that he initially expended some $1.6 million on the furniture and fittings and find his claim that he would not in all the circumstances have disposed of his restaurant including furniture, fittings and premises for only $550,000.00 entirely credible. 21. Having regard to the foregoing and to all the material before me, and not least to the demeanour of the two witnesses, the evidence of the plaintiff is clearly to be preferred; that of Mr. Cheung is suspect. I believe and accept the evidence of the plaintiff in material respects and reject that of Mr. Cheung. I find, as a fact, that there was an agreement between the parties for the defendant to manage the restaurant for the five-year period, i.e. the initial lease of 5 years or what remained of it, and the three-year renewal. I digress to say that even if I had not taken the favourable view I have of the plaintiff's evidence, the inherent weakness and indeed the lack of credibility of Mr. Cheung's evidence, would in any event have left undischarged the onus upon the defendant to show that the clear terms in question, of the agreement did not reflect the common intention of the parties. 22. I turn then to address Mr. Horace Wong's first submission founded upon the terms of the management agreement. He submits that the words "further extension or duration or renewal thereof" in clause 11 imports automatic renewal and extends the life of the agreement beyond 15th January 1987. Clause 11 is not only far from clearly expressed, but ambiguous if it can be read in that way. Accordingly, having regard to its matrix, and in particular to the restricted scope of the guarantee, the provision in the agreement itself for the deposit of $550,000.00 to be worked off in five years, and the evidence of the plaintiff which I accept, denying any intention to provide for automatic renewal or extended life, it seems to me that on its true and proper construction, clause 11 does not extend the life of the agreement for as long as the Housing Authority is prepared to renew the tenancy as contended by Mr. Wong; nor does it constitute the plaintiff trustee for the defendant in the manner also contended for. I pause here to observe that in any case, as will be seen, the Housing Authority has since the 15th January 1990 refused to renew the plaintiff's lease and instead allowed him to continue on the same terms on a "licence". 23. It follows that the defendant's counterclaim for rectification of the agreement must fail and is dismissed. 24. Returning then to the plaintiff's claim for possession, it is necessary to further describe the relevant background. The plaintiff's first tenancy ran from 16th January 1979 to 15th January 1984; it was renewed for three years from 16th January 1984 to 15th January 1987; and then again for a further three years to 15th January 1990. With effect from 16th January 1990, the Housing Authority granted the plaintiff the licence I have already mentioned, to continue occupation of the premises pending disposal of the present legal proceedings. 25. Mr. Wong submits that upon these facts, the plaintiff is a bare licensee and in law, therefore, does not have the necessary locus standi to claim possession. He relies upon the following passages in paragraph 23-08 of the 16th Edn. of Clerk & Lindsell on Tort:
And in paragraph 23-35:
26. However, paragraph 23-15 is in the following terms:-
27. The defendant, it seems to me, in managing the restaurant business, was acting in a ministerial character. Furthermore, the plaintiff was a tenant at the time the action was commenced and even after 15th January 1990, when the "licence" gave him exclusive possession, $125,000.00 was paid monthly in advance on his behalf by the defendant. In addition the Housing Authority had, by the express terms of its letter comprising the licence, to give him a month's notice to determine it. Clearly, therefore, he was more than a bare licencee, and in my judgment, had a sufficient interest in the premises to maintain an action for trespass against the defendant. 28. Mr. Wong made several submissions as to what followed the expiration of the management agreement on 15th January 1987. The plaintiff's pleaded case is that pending a better management agreement he granted a revocable licence to the defendant on the terms and obligations in the management agreement. 29. As I have indicated, Mr. Cheung denies any such licence. There are facts and considerations that point both ways. I do not propose to adumbrate them. As I have said, I prefer the plaintiff's evidence. Moreover, it is most unlikely that there would not have been a licence, implied, or as I find oral as averred and testified to by the plaintiff. In my finding on the probabilities, there was an oral licence as claimed by the plaintiff. 30. Mr. Wong submits that if there was such a licence, the plaintiff was not entitled to revoke it. As I have said, the plaintiff's case and evidence is that upon the expiration of the management agreement on 15th January 1987, he granted the defendant a revocable licence on the same terms and conditions as the management agreement, and that on the 9th February 1989, he revoked the licence by a letter to the defendant written by his solicitors, Johnson, Stokes & Master, giving the defendant 30 days to leave the premises. Mr. Wong submits that the plaintiff was not entitled to revoke the licence for two reasons, the first concerned with what the law permits, and the second with whether revocation was permitted by clause 8 of the management agreement. 31. In making the first submission, Mr. Wong relies on paragraph 802 of the 26th Edn. of Chitty oh Contract, in particular the following:-
32. For his latter ground, Mr. Wong relies upon clause 8, which I have already read. By clause 2 of the management agreement which I have also read, the defendant undertook to observe regulations issued by the licencing authorities and also to so manage the restaurant that nothing would be permitted or omitted contrary to any statutory provision or regulation. 33. It is not in dispute that there were warnings issued to the plaintiff as licencee, and three prosecutions against him over a period of 2 1/2 years, but on the evidence, these were unlikely to have a serious effect on the plaintiff's licence to occupy the premises. Also in the payment of rent in respect of the premises there was chronic delay by the defendant of the order of two weeks to two months, which attracted a number of warning letters, two of which threatened re-entry. Notwithstanding that the Urban Council, the Fire Department and the Housing Authority did not appear to take an unduly serious view of the breaches, I do not think that it follows that they would always continue to do so, particularly the Housing Authority in the context of renewal of the Lease or licence. In my view there was a real possibility of the plaintiff losing his licences, particularly his licence to occupy the premises. That, of course, would entail the loss of the benefit of the management agreement, and even more the very premises themselves. 34. The position under clause 8 is even clearer. I have no doubt the plaintiff feared the non-renewal of his licence, and that a reasonable man would in the circumstances conclude that non-payment of the rent on time would be likely to imperil and prejudice the continuance or the renewal of the licences relating to the restaurant. I conclude, therefore, that the plaintiff was entitled to revoke the licence on the foregoing grounds. 35. In any case, it would only be necessary to rely upon the foregoing reasons to revoke the licence if it were coupled with an interest, e.g. corresponding to the term or duration of the management agreement. I cannot see that the grant of the licence on "the terms and conditions of the Management Agreement" would import any period, particularly as the licence was granted pending the making of a "better" management agreement. In this context, as I have already said, I do not construe clause 11 of the management agreement as providing for automatic renewal or extended duration. Accordingly, the plaintiff could at any time revoke the licence, at least by giving one month's notice, since the defendant paid the 'rent' monthly (though even that may not have been necessary if the rent for February 1989 was not paid before receipt of the notice of termination dated 9th February 1989, as seems most probable). 36. I conclude, therefore, that the plaintiff was entitled to revoke the defendant's licence to occupy the premises. 37. I turn then to consider the effect of the letter or notice of termination dated 9th February 1989. It was in the following terms:-
38. Mr. Wong complains that the letter makes no mention of the licence, nor even propose to terminate it. However, in my judgment, termination of the licence is a manifest and inescapable effect of the unequivocal requirement to leave, and accordingly that the letter constitutes effective notice of revocation of the licence. 39. Finally, Mr. Wong submits that by reason of the conduct of the plaintiff, he is estopped from claiming that the defendant was or is a trespasser; moreover that by his conduct the plaintiff acquiesced in the plaintiff's occupation of the premises. 40. Mr. Wong relies upon propriety estoppel as described in paras. 244 and 245 of the 26th Edn. of Chitty on Contract. In summary, it is there said that propriety estoppel operates in a variety of cases that can be divided into two categories. First, where a land-owner has "stood by" knowing of the mistake or actively encouraged the mistaken party to act in reliance of his mistaken belief. Second, where there is not merely "acquiescence by the land-owner, but encouragement". 41. However, on the facts before me, as I find them, the plaintiff neither "stood by", nor encouraged the defendant. On the contrary, he granted the licence pending a better management agreement and he took reasonable steps to seek the better management agreement, but was fobbed off by the defendant's directors, particularly Mr. Cheung. Accordingly, I reject the defences of estoppel and acquiescence. 42. For all the foregoing reasons, I conclude that the plaintiff is entitled to and must be given possession of the premises. 43. I will now hear counsel as to the time and any other terms of the order of possession and the injunction sought, and also as to costs.
Representation: Miss Vivian Chih instructed by Messrs. Kwan & Kwan for the Plaintiff Mr. Horace Wong instructed by Messrs. Charles Chiu & Co. for the Defendant. |