Wong Heung v. Ng Chiu-chick and Pei Ho Electric Co (A Firm)

DCCJ006960/1976

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT KOWLOON

CIVIL JURISDICTION

ACTION NO. 6960 OF 1976

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Coram: D.A. Davies, D.J.

Date of Judgment: 16 December 1976.

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JUDGMENT

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1. In this action, the plaintiff claims possession of No. 135A, Pei Ho Street, Ground floor (hereinafter referred to as "the suit premises") against the defendants.

2. The suit premises are a shop, used by the defendants for the purpose of carrying on the electrical business.

3. There is no doubt, upon the evidence, that the plaintiff is the registered owner of the premises and that the premises are part of a 'new building' within the meaning of the Landlord & Tenant (Consolidation) Ordinance.

4. It is common ground also that a written tenancy agreement was entered into between the plaintiff and the defendants, dated 2nd July 1971, whereby the plaintiff leased the suit premises to the defendants, for in the first instance, a period of five years, expiring on 1st July 1976. This written agreement is a pro forma document in the Chinese language, and in due course, I will have occasion to refer to the contents thereof. The document is in evidence as Exhibit P2.

5. By registered letter dated 2nd January 1976, the plaintiff's solicitors wrote to the defendants giving notice to quit on the expiry of the tenancy agreement on 1st July 1976. The letter was admittedly received by the defendants.

6. Clause (2) of Exhibit P2, as translated into English, contains the following two sentences:-

"At the expiration of the Tenancy Agreement, the tenant must serve one month's notice in writing whether he would continue the tenancy or not. (The tenancy) is valid only on entering into a new Tenancy Agreement."

7. Now, it is the evidence of defendant Mr. Ng that when he received the plaintiff's solicitors' letter, he referred to his copy of Exhibit P2, and, for the first time, noticed these above-mentioned provisions in clause 2) thereof.

8. Pursuant thereto, he says, he wrote to the plaintiff on 31st May a letter of which he has produced a copy (Exhibit D1). [Read the translation of Exhibit D1]

9. Mr. Ng says that he posted this letter by ordinary surface mail, but never received any reply from the plaintiff. His next contact with the plaintiff was when she came to his shop, accompanied by her husband, on 28th June.

10. Mr. Ng's version of the conversation on 28th June is to the effect that the plaintiff then told him that she would offer him a new tenancy for a term of three years at double the existing rent, and conditional upon payment of $10,000.00 premium.

11. Mr. Ng says that he rejected the offer, pointing out that he had already paid a premium of more than $5,000.00 at the inception of the original tenancy, and that in any event, the plaintiff's offer was contrary to the provisions of the existing tenancy agreement, Exhibit P2.

12. The plaintiff in her evidence, utterly denies ever having received any letter from Mr. Ng, in the form of Exhibit D1 or at all.

13. She agrees that she went to the defendants' shop on 28th June to interview Mr. Ng, but her version of the conversation is entirely different.

14. According to her, the sole object of the visit was to inquire when the defendants would vacate. She says that Mr. Ng asked her for three months' grace so that he could dispose of his stock. She denies that there was any discussion whatever concerning a new tenancy. Her case is that throughout, her object has been to regain possession of the suit premises upon expiry of the 5-year tenancy agreement, so that her son could set himself up in some business there (the sort of business, as yet to be decided).

15. As can be seen, there is a considerable conflict of evidence between the parties. It is not easy to resolve, because there is merely one witness' word against the other. In connection with the meeting on 28th June, Mr. Ng has explained that although his wife was in the shop at the time, she was busy looking after the children. The failure of the plaintiff's husband to give evidence corroborating his wife has not, however, been explained. Obviously, he must have gone along with the plaintiff to witness the conversation, and the failure to adduce his evidence distinct weakness in the plaintiff's case.

16. As to whether or not the plaintiff received the letter Exhibit D1, Mr. Ng submits that she must have done, otherwise she would not have gone to his shop. I do not, however, think that this necessarily follows. Four weeks elapsed between the alleged letter and the visit, and it cannot be said that the latter must have resulted from the former.

17. Mr. Chan, for the plaintiff, has submitted that the copy letter Exhibit D1 is bogus, that it was merely a document concocted by Mr. Ng after the issue of the writ in an attempt to prove that he exercised his option under clause 2) of Exhibit P2.

18. He points to Mr. Ng's evidence that it was not sent by registered post but only by ordinary mail despite the obvious importance of it. With respect, however, I do not find this very conclusive either. I agree that such a letter should be sent by registered post, but very often persons of Mr. Ng's educational standards lack acumen in these sort of matters.

19. I realize, of course, that the fact that the plaintiff as long ago as January instructed her solicitors to give the defendants notice to quit (and I note that in their letter they omitted any mention of clause 2) of the tenancy agreement:), would on the face of it, indicate her intention to resume possession at the expiry of the 5-year term on 1st July.

20. Equally, however, I think it is clear that the defendants did not wish to vacate the suit premises, and thus the steps allegedly taken by Mr. Ng in the writing of Ex. D1 is on the face of it perfectly feasible.

21. I have to say that on balance. I prefer the evidence of Mr. Ng to that of the plaintiff. He sounded much the more convincing of the 2 witnesses.

22. I believe that he did write Ex. D1 to the plaintiff on 31st May. Whether she received that letter or not, I cannot say for sure, but I think it quite likely.

23. As to the meeting of 28th June, I believe that the plaintiffs attitude probably was that she wished to have vacant possession of the suit premises, but that if Mr. Ng was prepared to meet the heavy financial demands contained in her offer, she was prepared to give him a further 3 years' tenure.

24. Those, then, are my findings of fact.

25. Next, I must consider the legal position of the parties, having regard to clause 27 of Ex. P2.

26. It is tolerably clear that Mr. Ng now believes that he had an option to renew the original tenancy on the same terms - ie. for a further 5 years, at the same rent as hitherto, and subject to all the same terms and conditions as hitherto.

27. I say "now believes", because he himself testified that he was not aware of this option until he perused Ex. P2 after receiving the plaintiff's solicitors' letter in January.

28. It can fairly be assumed therefore, that this option was not in his contemplation when he entered into the tenancy agreement, otherwise it would have remained in his mind as a very important aspect of his contract with the plaintiff. From the defendant's point of view, therefore, it was merely a happy event that the proforma printed tenancy agreement (which is of a sort obtainable in most stationery shops) happened to include such a provision.

29. Whether the plaintiff was originally aware of the provision is not at all clear, but I think it probable that she was equally as ignorant of it as Mr. Ng was. To this extent, the last two sentences of Clause 2) cannot be truly said to express the true intention of the parties when they entered into the agreement, but only exist in the agreement by virtue of the typesetter's machine. The defendants now (quite naturally) seek to use those provisions to their advantage, but whether the court should give effect to them is another matter. Be that as it may, the question arises of what construction should be placed upon those provisions in determining the rights of the parties.

30. I have already discussed Mr. Ng's case on the matter. Mr. Chan has submitted on the contrary that there is no option to the defendants to elect for a further lease on the old terms. His argument is that the expression "(the tenancy) is valid only on entering into a new Tenancy Agreement", must be taken as meaning that if the tenant informed the landlord by one month's notice in writing that he wished to continue the tenancy, this merely gave him first priority in the event that the landlord intended to re-let the premises, but that the terms of the new tenancy were to be wide-open.

31. These questions in my view go to the very crux of this case.

32. I have done some considerable research into the state of the law on the matter, and am surprised at the comparative scarcity of authority. I was concerned first to establish whether, if a tenant does have an option to renew, and the agreement is silent upon the terms of the new or renewed lease, the terms are those of the old lease, or whether the terms are wide-open.

33. The only clear authority on this point is the case of Lewis v Stephenson (1898) Volume 67 Law Journal Queen's Bench Division at p. 296.

34. Despite its age, this case appears to be good law still, and was relied upon by Huggins D.J. (as he then was) in Chiu Chau Ngan and Hing Wa Ho and Another (1962) District Court Law Report at page 127.

35. It was held in Lewis v Stephenson, that where the original lease provided for "the option of renewal" by the tenant, the latter was entitled to a renewed agreement for the same period, on the same terms (except as to renewal) as those contained in the original agreement.

36. I am accordingly of the view that if Clause 27 of Ex. P2 does in effect give the defendants an option of renewal, the terms of the renewal must follow those of Ex. P2 itself, including the period, and the rent payable. I say this notwithstanding the provision making a new tenancy agreement obligatory. A new tenancy agreement does not necessarily or even probably, imply new terms or conditions. What was in the mind of the draftsman of Ex. P2, we will never know, but there are reasons why a new tenancy agreement might be thought desirable which have nothing to do with new terms. For example in our complex landlord and tenant legislation, entirely different considerations might apply, or might in future be applied to, a lease created in 1971 and then renewed, than to a brand new lease created in 1976. Also, the former might be regarded as a lease for a total period of the original plus the renewed period, whereas the latter regarded as a term of 5 years only. None of this has anything to do with different conditions in the lease itself, and I read Lewis and Stephenson as applicable, militating against Mr. Chan's argument that the terms of a new lease would necessarily be wide-open.

37. These remarks, however, only apply if Mr. Ng is right in his contention that Clause 27 of Ex. P2 confer upon him an option to renew.

38. The issue of the circumstances in which an option is created was faced by Huggins DJ (as he then was) in the case above-mentioned, Chiu Chau Ngan and Hing Wa Ho. The wording of the tenancy agreement in that case was not at all the same as that of Clause 27 of Ex. P2. The words to be costrued to rent case were "(The defendants) shall have priority to continue to rent (the premises)". The learned D.J. held, "by a very narrow margin". as he put it that they conferred an option rather than conveyed merely the defendants' right of first refusal.

39. The words I have to consider are "At the expiration of the Tenancy Agreement, the Tenant must serve one month's notice in writing whether he would continue the tenancy or not". As I read them, these words do not confer any right at all upon the defendants. They merely oblige them to inform the plaintiff whether or not they wish to continue - information which would be useful to her in case she is willing to continue a landlord/tenant relationship with him. But. I think it would be reading too much into the words to say that they obligate the plaintiff in any way.

40. At very most, it could only be said that they may give the defendants a right of first refusal. For this reason alone, the Chiu Chau Ngan case is in my view not on all fours with the present case.

41. Before I leave that case, however, I would refer to the remarks of Huggins DJ at page 132, paragraph 2:

"But what if the words of the agreement are to be construed as purporting to give a right of first refusal? It is clear that such a right can be conferred only if the conditions of its exercise are clearly expressed: see Ryan v Thomas (1911) 55 S.J. 364. The words "shall have priority to continue to rent the premises" do not indicate the conditions upon which any right of first refusal shall be exerciseable and if they are not to be construed as conferring an option to renew, then in my view, they are void for uncertainty."

42. Now, in the present case, I have already held that the words to be construed do not confer an option. But equally, as in the Chiu Chau Ngan case, those words do not indicate the conditions upon which any right of first refusal shall be exerciseable.

43. I respectfully agree with the view of Huggins DJ that in the circumstances, they are void for uncertainty. Added to this is the matter of the intention of the parties as at the inception of the agreement.

44. As I earlier pointed out, Mr. Ng was not even aware until January this year that the provisions in Clause 27 existed, much less having intended them in the beginning.

45. As to the plaintiff, I am quite certain that she did not intend to create what could turn out to be a 10-year tenancy on the same terms and conditions throughout the whole period. No landlord would willingly bind himself not to increase the rent of a premises for a possible period of 10 years in the future. I can safely assume therefore that the plaintiff did not contemplate such a thing.

46. This having regard to my view that the words under consideration are in all probability void for uncertainty, and the additional fact that they do not in any event express the true intention of the parties when the tenancy agreement was entered into.

47. I hold that they cannot be relied upon by the defendants to compel the plaintiff to grant them further possession of the suit premises whether by continuation of the old lease or a new lease, on the old terms or at all.

48. In other words, Mr. Ng was not correct in his belief that he had an enforceable option to remain in the suit premises after 1st July 1976. The defendants right to possession expired by effluxion of time after the 5-year term had elapsed, and the plaintiff has the right to re-enter.

49. This case more than amply illustrates the folly of relying upon proforma printed documents when entering into legal agreements. It is an exercise in being "penny-wise, pound-foolish".

50. I enter judgment for the plaintiff for possession of the suit premises, and for mesne profits as claimed.

51. I award costs to the plaintiff, to be taxed on the standard scale.

52. In open Court this 30th November, 1976.

Certified true copy.

Representation:

Exs P1, P2 and P3 released

to the plaintiff.Exh. D1 released to the defendants.