S.W. Lee & Co Ltd v. Blue Pool Bakery Co

HCA000637/1970

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 637 OF 1970

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Coram: Mills-Owens, J.

Date of Judgment: 25th September 1970

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JUDGMENT

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Mr. Charles Ching (instructed by Messrs. Stephen Lo & Co.) for plaintiff.

Mr. Martin Lee (instructed by Messrs. Yung, Yu, Yuen & Co.) for defendant.

1. This is an action for possession of 'new' premises, being shop M-3 (No.2) Hing Wah Mansions, Lower ground floor. No.1 Babington Path, Hong Kong, known as the Blue Pool Bakery of which the defendant is in possession. Having regard to the course which the trial has taken, the sole dispute is one of fact, namely whether the defendant, Mr. Wong Tien Hwa trading as Blue Pool Bakery Company and being the sole proprietor, was orally promised a lease for 5 years from the 25th June 1969 at a rent of $700 per month. It is expressly agreed by counsel that no question arises under the Statute of Frauds, because any objection of want of writing can be met by the plea of part-performance. Evidence for the plaintiff company was given by Mr. Shum Ping Nam, a director of and agent for the plaintiff company which is a limited company substantially owned by one Mr. S.W. Lee and his wife. The defendant Mr. Wang, gave evidence on his own behalf. Mr. Shum and Mr. Wang were the only witnesses. It is common ground that the defendant was a tenant for a term of 5 years expiring on the 24th June 1969 at a rent of $550 per month. That 5 year tenancy had been confirmed by a letter (Ex.P2) written by Mr. Shum on the 10th June 1964. It is common ground also that there were discussions between Mr. Shum and Mr. Wang regarding an increase in the rent to be paid after the expiry of that 5 year term, resulting in an increased rent of $700 becoming payable as from the 1st September 1969. The defendant claims that the discussions went further in that an oral agreement was arrived at between Mr. Shum and himself for a new lease for 5 years as from the date of expiry of the previous 5 year term, i.e. from the 25th June 1969. It is agreed that on the 31st October, 1969 the plaintiff company as landlord gave a statutory 6 months notice (Ex.P3) under the Tenancy (Notice of Termination) Ordinance (Cap.335) terminating on the 30th April, 1970, which notice, it is agreed, was valid and effectual if there was no such oral agreement for a new lease for 5 years as the defendant alleges. In these circumstances it is clear that the burden of proving the alleged oral agreement lies on the defendant, to the usual civil standard of the balance of probabilities.

2. It is clear that the same rent as hitherto, viz $550 per month, was paid for the two months of July and August 1969 following the expiry of the 5 years term ending on the 25th June 1969, and that as from the 1st September 1969 the rent payable became $700 per month which was duly paid to the end of April 1970 when the notice of termination expired. Mr. Shum who has handled the plaintiff company's rent affairs for some 20 years, said that the increase in rent came about in circumstances to which I shall now refer. In 1969 the 'landlord' Mr. S.W. Lee, was away from the Colony, in America and at one time in Canada. Mr. Lee was in the habit of telephoning Mr. Shum by long distance call on the 1st or 2nd of each month. In one such call, namely on the 1st or 2nd August 1969, Mr. Lee instructed Mr. Shum to inform the defendant that his rent was to be increased to $700 per month. Accordingly, shortly thereafter, Mr. Shum went to see Mr. Wang at the shop premises, the Blue Pool Bakery. Mr. Wang was prepared to agree to an increase to $650 only, viz an increase of $100 per month rather than an increase of $150. Prior, to that, that is to say shortly before the 5 year term ended on the 25th June 1969 he had seen Mr. Wang at the shop regarding arrears of rent and Mr. Wang had then asked him what was to happen when the 5 year term expired. He had replied saying that he would have to obtain Mr. Lee's instructions. In due course, that is to say on the 1st or 2nd August 1969, Mr. Lee instructed him by long distance call that the rent was to be increased to $700 per month. In giving this evidence Mr. Shum was somewhat equivocal, agreeing in cross-examination at one point with the suggestion that it was only at the beginning of August 1969 that he discussed with the defendant what was to happen when the 5 year term expired. He gave what might be thought to be an unsatisfactory explanation also as to why the plaintiff company did not approach the defendant at or before the expiry of the 5 year term; he said that this was not done because there was no formal lease or contract in respect thereof, merely the letter Ex.P2. It may be that he was implying that as there was no formal contract the plaintiff company could not, or thought it could not, claim exemption under the Tenancy (Notice of Termination) Ordinance and, to be on the safe side, eventually decided to give the statutory 6 months notice thereunder, but I cannot derive that as a firm conclusion. Be that as it may, Mr. Shum agreed that the object of regaining possession was to sell the whole property and that this decision was made by Mr. Lee in October 1969. (Mr. Lee returned to the Colony about November 1969). Following upon his visit to the defendant in early August, later in August, that is to say after a lapse of about 20 days, he again sent to see the defendant to tell him that he had heard from Mr. Lee that the increase must be to $700; this instruction had come from Mr. Lee in a long distance call made about mid-August. Mr. Shum agreed that it was unusual for Mr. Lee to telephone him in the middle of the month but as he understood. Mr. Lee was anxious to know that the increase had been agreed. Mr. Shum accepted that such telephone calls cost $70 per 3 minutes and at one point in his cross-examination he appeared to agree that Mr. Lee was expending $70 to ascertain whether the defendant agreed to the increased rent being $650 or $700, a difference of a mere $50 per month. I think however that he clarified his meaning in subsequent answers, namely that Mr. Lee's second call in August was to ascertain whether the increase to $700 was agreed, that he then told Mr. Lee that the defendant was suggesting $650 and that Mr. Lee adhered to his figure of $700; two days later, still in August, he again went to see the defendant and told him of Mr. Lee's decision whereupon the defendant agreed to the $700, to commence as from the 1st September as Mr. Lee required and as the defendant then agreed. Mr. Shum agreed that it would be quite usual for a tenant in such circumstances to enquire for how long the new rent would be maintained at the agreed figure but the defendant made no such enquiry of him; many tenants, he said, would rely on the laws of Hong Kong, by which I understood him to mean Cap.335. Nor did the defendant suggest that he should have a term of 5 years, nor ask for a confirmation thereof in writing.

3. The defendant, Mr. Wang, in his evidence gave a different version. He said that all relevant discussions took place at the Czarina Restaurant, of which is part-owner, not as Mr. Shum alleged at the shop premises. And, he said, the discussions commenced in April of 1969, not August. He said that in April 1969 Mr. Shum came to see him at the restaurant and said that, as the 5 year term was shortly to expire, if he wanted to stay on for another 5 years the rent would be increased to $700 per month. He counter-offered $650, but accepting a 5 year term. Mr. Shum said he had to consult Mr. Lee. Then in May Mr. Shum came to see him again, again at the restaurant, and informed him that Mr. Lee insisted on an increase to $700. Having no alternative he agreed. He asked Mr. Shum for something like the letter Ex.P2 as proof, but Mr. Shum said that this would have to await Mr. Lee's return. He agreed to the increase to $700 only, as he said, upon the terms of a new letting for 5 years, and, as he said, Mr. Shum agreed to that. Mr. Shum came to see him again at the restaurant in June when discussion took place as to when the increased rent was to commence, it being finally agreed that it would commence to be payable as from the 1st September 1969, although he had suggested 1st January 1970. In May and June 1969, the defendant said, he expended some $10,000 on decorations and installations on the faith of the grant of a new lease. Here it should interposed that no extraneous evidence was adduced in proof of this alleged expenditure. This was so because of the course taken in the trial. The defence, and counter claim for a new lease, pleaded part-performance, consisting of this alleged expenditure and the payment of the increased rent as from 1st September 1969, but the reply did not plead the statute. At one stage it was proposed to amend the reply in order to plead the statute. Subsequently this was dropped, it being accepted that the payment of the increased rent was in itself sufficient as part-performance - in the event, of course, of it being held that there was such an oral agreement for a new lease as the defendant alleged. Thus the question whether the alleged expenditure was in fact incurred remains supported only be the defendant's word.

4. In cross-examination it appeared that in an affidavit of the 22nd May 1969 the defendant had affirmed that it was in July or August that the oral agreement for a new lease was arrived at between himself and Mr. Shum. His explanation was that he was ill at the time and only discovered the mistake when he came to check his accounts relating to his expenditure of $10,000 on the premises. He admitted that he was sufficiently acquainted with English to read and understand "In July or August", but he did not understand the meaning of the whole paragraph (paragraph 3 of the affidavit). He admitted also that he had not done anything about the 'mistake', except that the defence pleaded the correct position. He agreed that in February this year he decided to open a new shop near the one in dispute and that the new shop, a very much larger one, was actually opened for business in May 1970. That was, of course, the month following that in which the notice of termination (Ex.P3) expired so that the suggestion follows that the defendant was, in February 1970 busy providing himself with alternative premises to which to move his business on the expiration of the notice. The defendant denied this, saying that he did not then realise that a promise of a 5 year lease might be enforceable although not evidenced by writing but decided to 'play safe'. He agreed that the shop premises in dispute were closed in June 1970, for a period, but, he said, that was because he did not have sufficient employees for both shops; this notwithstanding that he had, as he said, spent $10,000 on the premises in dispute in May or June 1969.

5. An important feature of the case is a letter written in Chinese by the defendant, on the 12th November. 1969 as it is agreed, to the landlord's solicitors in response to the notice of termination. The letter is Ex.P4. In this letter the defendant does make reference to a further term of years. This appears after some passages which could well be read as asking for the landlord's sympathy. As the defendant said in evidence it is customary for 'Northerners' such ashe to write in this way. The passage in question reads:-

"Further, during the current year, when it was almost five years, Hing Wah informed us that for the coming 5 years there would be increase of rent and I have not raised any objection."

The letter goes on to plead for sympathy, to offer a further increased rent, and to offer to purchase not only the shop in dispute by adjoining shops of the landlord. Asked why he did not forthrightly object to the notice of termination on the grounds of the promise of a new lease, his explanation was that he was not aware that an oral promise might be enforceable. Asked from what date the new term of 5 years was to run he said from the date of expiry of the previous 5 year term (the 25th June 1969); asked when the new rent of $700 was to commence he agreed it was from the 1st September 1969; so that on his evidence there was to be a varying rental for the new 5 year term. There was no evidence of any sustained effort on the part of the defendant to obtain written confirmation of the alleged new 5 year term; as he said, Mr. Shum promised to get Mr. Lee on his return to write in confirmation, but the defendant appears to have done nothing more about it, except for the vague reference to the 'coming 5 years' contained in his letter Ex.P4. The only further correspondence is the landlord's solicitors' letter of the 13th November, 1969 (Ex.P5) in which they say they are referring Ex.P4 to the landlord. It adds nothing to the evidence, especially as it is agreed that the whole correspondence is not before me.

6. There are undoubtedly unusual features in the landlord's case, particularly in that no approach was made to the defendant tenant at or about the expiry of the 5 year term on the 25th June 1969 with a view either to regaining possession or negotiating a new tenancy or an increased rent. On the other hand Mr. Lee was away but obviously had in mind the question of increasing the rent by the 1st or 2nd August. It is a curious feature also that having required the payment of an increased rent, to commence 1st September the landlord should within a matter of a few weeks thereafter decide to give the defendant notice of termination. But these matters, in my view, afford but little support to the defendant's version of an oral promise of a new lease for 5 years, bearing in mind also Mr. Shum's evidence that in October, or it may be November, 1969, Mr. Lee decided to sell the premises. It is suggested that Mr. Shum's evidence of a $70 telephone call about a matter of $50 per month difference (between an increase to $650 offered by the defendant as against an increase to $700 required by the landlord) cannot be accepted. In my view Mr. Shum clarified this point entirely in the manner which I have already indicated. In my view Mr. Shum was an honest witness throughout.

7. As to the defendant, it is of course a very easy matter for a tenant to allege an oral promise of a new lease, especially in circumstances where a new rent comes to be paid. Nevertheless I have kept an open mind. The fact that the defendant opened a new shop in time for the expiry of the notice of termination certainly tells against him. His 'mistake' about the dates in his affidavit, 'July or August', are significant in that they coincide with Mr. Shum's version of their discussions having taken place in August, not April and May as the defendant alleges. And July or August would not fit in with the defendant's version of expenditure of $10,000 in May or June on the faith of a promise of a new lease. His letter Ex.P4 is largely a plea for sympathy; he offers an increased rent; he offers even to buy - this is hardly the course which a man would take if he had an unequivocal promise of a 5 year term at an increased rent, already acted upon for some 2 1/2 months by the time the letter came to be written. I would prefer the evidence of Mr. Shum, preferring him also as a witness in comparison with the defendant Mr. Wang. On the whole of the evidence I find as a fact that there was no such oral promise as the defendant alleges. Accordingly I give judgment for the plaintiff company for possession, and for mesne profits at the rate of $700 per month as from 1st May 1970 until the date of delivery of possession to the plaintiff company, with costs.

8. Stay of execution as to possession only:-

Representation:

Mr. Charles Ching (instructed by Messrs. Stephen Lo & Co.) for plaintiff.

Mr. Martin Lee (instructed by Messrs. Yung, Yu, Yuen & Co.) for defendant.