Madam Chan Lau Pao v. Fung Shui Lam

Case No.HCA 1100/1972

Court

High Court CFI

Date—

Judge—

Case Document

100%Judiciary

HCA001100/1972

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1100 OF 1972

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BETWEEN	Madam CHAN LAU PAO	Plaintiff
	and
	FUNG SHUI LAM	Defendant

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Coram: Trainor, J. in Court.

Date of Judgment: 19th January, 1973.

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JUDGMENT

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1. The plaintiff in this case claimed possession of the Ground Floor and Cockloft in the premises 27, Tung Choi Street, Kowloon, mesne profits at the rate of $1,450 per month for the premises from the 1st May 1972 until delivery up of possession and costs.

2. When the case came on for hearing it was agreed between the parties that the defendant had held the premises under a lease for five years at the monthly rent of $1,450, which lease had expired on the 30th April, 1972 by effluxion of time.

3. An application for leave to amend the Defence was granted by consent. In the amended Defence the defendant pleaded that certain words in the lease constituted an option to renew the tenancy at a rent and on terms to be agreed, but that the plaintiff had failed or refused to let him exercise the option. He counterclaimed for:

	"(A)	An order for specific performance of the said tenancy agreement;
	(B)	Further or in the alternative an Order that the plaintiff should grant a new tenancy agreement for a term of five years or any other term as may be agreed upon to the Defendant at a rent to be assessed according to the market rate."

4. The plaintiff, by consent, filed a Reply to the amended defence and a Defence to the Counterclaim. He joined issue with the defendant on the Defence and denied in the Defence to the Counterclaim that the defendant was entitled to the relief claimed. An allegation in the Defence to the Counterclaim was later withdrawn.

5. After the plaintiff had given evidence that she wanted the premises for her own use the Court was informed that the issue in the case turned on the interpretation of that part of the lease which the defendant maintained created an option. The lease was written in Chinese and the translation of the relevant part reads:

"Upon expiration of the tenancy the landlord shall be required to return the entire deposit money to the tenant. If at such time the tenant shall wish to continue renting the said ground floor and the said cockloft he must come to an agreement with the landlord in respect of the rent and of other terms and conditions before a new Tenancy Agreement is executed for the continuance of tenancy. If at the expiration of this tenancy the tenant does not agree to the terms and conditions then he may discontinue renting the said premises. In such event the tenant may deliver possession of the said premises to the landlord. However, in the event other terms being equally acceptable to both parties, the tenant shall have the priority of renting but consent of the landlord must be secured."

6. As the issue between the parties depended on the defendant's counterclaim his counsel addressed the Court first. He argued that the quoted part of the lease meant that at the end of the original term the tenant was entitled to a new tenancy on the basis of the current market value, and that the covenants and conditions of such tenancy should be arrived at on the same basis. He pointed out that on the termination of any tenancy the parties may negotiate a new agreement if they so wish, but if that was all that was intended here then what was quoted was superfluous. He maintained that such was not the case; that what was inserted by the parties was done with the intention of creating an obligation. He referred the Court to Ma Ip (or Yip) Mung v. Lai Chuen trading as Kin Hing Factory⁽¹⁾. This was a case on appeal from a judgment of the District Court in which the appellant, the landlord of the premises the object of the proceedings, had been refused an order for possession and was directed, pursuant to an option for renewal contained in the lease, to grant to the respondent a renewal for a similar period and on similar terms to those in the original lease. The judgment of the District Court was based on its interpretation of a clause in the original lease which reads:

"4(3)

At the expiration of the said term of five years the lessee shall have the option to renew for another term and upon such terms as may be agreed upon by both parties."

The Full Court held that this constituted a valid option for renewal and dismissed the appeal.

7. Counsel for the defendant argued that that case is analogous to the instant case. He also cited Smith v. Morgan⁽²⁾. There a vendor in a conveyance covenanted not to sell his property adjoining that sold for a period of five years; that should he wish to do so thereafter the first option of purchasing the land would be given to the purchaser at a price to be agreed upon; and that the option was to be exercised within a specified time from the date of offer. A declaration on the interpretation of the option was sought from the Court by the vendor. It was held:

"The absence of a settled price did not vitiate the covenant, for agreement on the price was no part of the offer which the vendor was bound to make; the covenant was not an agreement to agree but an obligation imposed on the vendor alone to make an offer for sale; the figure to be agreed on was not the price at which the offer was to be made, for an offer represented the will of one party and not the consensus of both; accordingly the words 'a figure to be agreed upon' related to the ultimate contract of purchase, should there be one; the obligation on the vendor was to make an offer to the purchaser at the price at which she was in fact willing to sell."

It was further held in that case that:

"In settling the price ...... the vendor was bound to act bona fide; thus if she was intending to sell by auction the offer would be at the auction reserve .........."

8. Counsel contended that in the case at hearing the plaintiff was under an obligation to offer a new tenancy to the defendant for a term and subject to terms and conditions arrived bona fide and having regard to current conditions. He did not suggest how the term should be arrived at.

9. Counsel for the plaintiff argued that the Ma Ip case and the case at hearing were not analogous. In the former the Court could find on the clause of the old agreement, "...... the Lessee shall have the option to renew for another term..." He said there was no question there of the Court having to arbitrate; the words "option for another term" indicated the parties' intention. He referred to the third paragraph on page 50 of the Ma Ip case and contended that what was there referred to as a "talking point" is what that part of the lease in dispute is in fact. He maintained that that part is nugatory and inoperative. Counsel referred to Smith v. Morgan cited by Counsel for the defendant. He read from p. 1501 g which quoted a schedule to the deed of conveyance. It reads:

"Not for a period of five years from the date hereof to sell...... (the property retained by the vendor) and that at the expiration of the said period or at any later date should the Vendor wish to sell the same the first option of purchasing the said land .... shall be given to the Purchaser at a figure to be agreed upon Provided that any such offer for sale shall only remain open for a period of 3 months from the date on which the said offer for sale is made by the Vendor."

He referred to the headnote where the first word is "Uncertainty" and then passed to page 1504 C. From that he cited:

"The Vendor also relied on a recent decision in the Chancery Court of the County Palatine of Lancaster, King's Motors (Oxford) Ltd. v. Lax (3). In that case a lease gave to a tenant an option to extend the lease '..... at such a rental as may he agreed upon between the parties hereto .....' It was held by Burgess V-C that in the absence of an arbitration clause or some supplementary agreement fixing the rent to be paid, the option was void for uncertainty and could not be enforced against the defendants. It seems to me that that was a different case because the agreement as to the rent was made an integral part of the option procedure. In the present case agreement as to price is no part of the offer which the Vendor is bound to make." (Brightman J.).

Counsel for the plaintiff would distinguish the case at hearing from Smith v. Morgan in that in the former there is uncertainty which did not exist in Smith. Counsel maintained that an option must be in language which can be construed as creating an obligation and not merely an agreement to agree. He said that in the two cases cited the Courts found there existed an obligation which cannot be found in the lease in this case.

10. The question I have to decide is: the part of the lease which I have quoted void for uncertainty or can it be construed as creating an option whereby the landlord has incurred an obligation to grant, or at least offer, a new tenancy to the tenant? In endeavouring to answer this question the Court must be influenced by a natural reluctance to declare any contract witnessed by a document executed by the parties to it sterile by reason of uncertainty. Nevertheless, if the terms are so vague as to leave the intentions of the parties unascertainable then a Court has no alternative but to do so. Counsel for the defendant contends that the words in this part constitute an option which imposes on the landlord an obligation to grant a new tenancy; Counsel for the plaintiff contends the words are so vague and ambiguous that they cannot be construed as creating any obligation on the landlord.

11. There is certainly good grounds for saying that the language of the part of the lease in dispute is ambiguous. "If ..... the tenant shall wish to continue renting the said ground floor and the said cockloft he must come to an agreement with the landlord in respect of the rent and the other terms and conditions before a New Tenancy Agreement is executed for the continuance of the tenancy". These words certainly lack the positiveness of those used in the Ma Ip case. There provision was made for the lessee "to have the option to renew for another term". The words "wish to continue renting" might lefer to anything; even a licence or a tenancy at will. It would be difficult to interpret them as meaning a tenancy from week to week or month to month as this would constitute a new tenancy. It would be equally difficult to construe the words as meaning "renew for another term". This too would constitute a new tenancy. That a new tenancy for the term and on the terms and conditions in the old lease was not contemplated can be gathered from the fact that the tenant must come to an agreement "before a New Tenancy Agreement is executed for the continuance of the tenancy". The repetition of the theme of continuity must, on ordinary interpretation exclude the idea of a new lease. But supposing it were possible to visualise a new lease how is the term to be arrived at. The rent might be settled on the basis of supply and demand but it is hard to see how the property market could assist in fixing a term. An aspect of the question to be answered is: can there be discerned in the words used the provision for an option that Hogan C.J. saw in the Ma Ip lease whereby the obligation contended for by counsel for the defence can be imposed on the landlord.

12. In construing a document a Court must in the first instance have recourse to the language of the document itself. The language of the document and its purpose may then be applied in interpreting the parts so that the parts may fit into the overall picture, if this can be done without doing violence to the language used in those parts. If, however, the result is that different conflicting interpretations are possible which cannot be reconciled having regard to the language alone the court may then resort to such well-known principles of construction as: covenants are most ...(illegible) strongly construed against the covenantor; or it is preferrable to uphold a deed than that it should perish. But these are principles to which recourse may he had only when the document cannot be construed on the language used, and there are disclosed possible, conflicting rival interpretations. Where the language is so vague and uncertain that no intention is discernible then the principles have no application.

13. In the My Ip case Hogan C.J. was able to find such rival interpretations and, albeit with some reluctance, apply the principles to which I have referred. At p.51 he said:

	"The importance of such an option was apparent, and having included a provision for it in the lease in terms which one party alleges are ineffective and the other contends are effective the Court must, I think, as in the case of Foley v. Classique Coaches Ltd.(4) and Hilas v. Acros (5), feel impelled to find and apply an effective construction if such a construction can reasonably be ascribed to the provision.
	It seems to me that the language used in Clause 4(3) can be construed in the manner suggested by the respondent and that in pursuance of the principle 'verba fortius accipiuntur contra proferentem' and 'verba its sunt intellegenda ut res magis valeat quam pereat' it should be so construed. Consequently it is not necessary to seek additional guidance in removing the doubt by a further appeal to conduct and usage."

14. Thus Hogan C.J. was able to find that there was a provision for an option but although the terms were ambiguous it was possible by applying the principles he mentioned to provide an effective construction. In arriving at this conclusion he would appear to have derived considerable support from the words in the lease "..... the lessee shall have the option to renew for another term ......"

15. In the case of Smith v. Morgan the Court was able to discern the intention of the vendor from the language of the document. Brightman J. at p. 1503 f said "What the conveyance purports to impose is an obligation on the vendor alone, that is to say, an obligation to make to the purchaser an offer for sale should the vendor wish to sell ......"

16. In both cases the Court was able to find that an obligation had been created. In one by accepting one of the conflicting suggested interpretations by resorting to the principles referred to; in the other from the language of the document itself.

17. I have dealt with these two cases in this judgment because Counsel on both sides have cited them. I do not think they are of much help in deciding the instant case. The case referred to by Brightman J., King's Motors (Oxford) Ltd. v. Lax (3), might have been of much more help; and were it not for the fact that I have come to a decision without having had recourse to it, I would have called the instant case before me again to hear counsel for the defendant on the King's Motors case.

18. Can anything he found in the language of the disputed part of the lease in this case which imposes on the landlord an obligation to grant or offer "a continuation" of the lease, or a new lease. The answer is: no. The language used is so vague and ambiguous that a reading of it either alone or in conjunction with the whole lease does nothing to suggest what the intentions of the parties were. The word "option" does not appear throughout and this is a word that might well have been expected to appear had the parties contemplated one. It is true that the parties were without professional assistance, but the word is one well known in the context of landlord and tenant, and the defendant in his defence has indicated an awareness of its implication. Neither is there any analogous word or phrase that would suggest an obligation on the part of the landlord. There is no such phrase as "another term" (as used in the Ma Ip case) or "similar term"; there is simply nothing to indicate how the lessee would hold should he wish "to continue renting". There is no suggestion or implication as to how the rent might be calculated. There is nothing to indicate how the tenant "must come to an agreement" with the landlord.

19. The language used in this part of the lease is so vague and ambiguous that it is impossible, as I said earlier, to discern any intention. If no intention is discernible a fortiori no conflicting intentions are discernible and so the principles of construction are of no avail to the defendant. I can find no provision which the parties could contend as being "effective" or "ineffective" which would enable me by resorting to the principles of construction to construe the disputed clause as creating an option in favour of the lessee.

20. If perchance any intention might be read into this unfortunate clause I think it would still be of no avail to the defendant. It was intended that the lease was for a term of 5 years and no more. The lease says before the part which I have quoted "Both parties agree that the terms of the tenancy be 5 years (i.e. from the 1st May 1967 to 30th April, 1972)", but there always existed the possibility that the landlord might wish to lease the property again. In such event "....... the terms being equally acceptable to both parties, the tenant shall have the priority of renting but consent of the landlord must be secured." Does this mean anything more than that if the landlord wishes to let the premises and the terms are acceptable to both parties the tenant shall have priority in taking them? As the landlord does not wish to re-let the matter of priority does not arise.

21. In the circumstances I must dismiss the counterclaim and find for the plaintiff in the terms of his statement of claim with costs of the claim and counterclaim.

22. The plaintiff consents to a stay of execution for six weeks from the date hereof and should a Notice of Appeal be filed, until the termination of the Appeal.

23. The stay of execution is conditional on the payment of mesne profits up to the date of lodgment of Notice of Appeal and monthly thereafter as they accrue.

Representation:

Mr. Bokhary (J.S. & M.) for plaintiff.

Mr. Patrick Fong (R.W. Young & Co.) for defendant.

(1) (1957) H.K.L.R. 32

(2) (1971) 2 A.E.R. 1500

(3) (1969) 3 A.E.R. 665

(4) (1934) 2 K.B. 1

(5) 147 L.T. 503