Ho Hau v. Chan Kwai Tong

HCA001008/1970

In the Supreme Court of Hong Kong

Original Jurisdiction

Action No.1008 of 1970

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Coram: Briggs, J. in Court.

Date of Judgment: 1st April, 1971.

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JUDGMENT

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1. This case arises out of a dispute as to the true meaning of a written agreement made between the Plaintiff and the Defendant on June 25th 1964.

2. The case for the Plaintiff was conducted by his son who holds a power of attorney for his father. He told the court that he was very familiar with the facts on which his father relied, and indeed, that he had been present when most of what was relied upon occurred. After some hesitation a medical certificate was produced to show that the Plaintiff himself was too ill to come to court from the New Territories to give evidence. If I may say so, the son of the Plaintiff, who is a man of affairs, conducted his father's case with great vigour and considerable skill. The Defendant was represented by counsel.

3. At the material time the Plaintiff owned a Restaurant situated at No. 1 First Street, Shatin. It was called the Lin Yuen Restaurant. The Defendant was an employee in another Restaurant elsewhere.

4. The defendant was introduced to the Plaintiff by one Lau Hon Wah in yet another restaurant in Shatin called, I think, the Boon Yuen Restaurant. Two versions of what occurred at that meeting have been given to me. The Plaintiff's son said he was present. He said that the health of the Plaintiff was failing and he wanted to engage a manager for his Restaurant. And the Defendant suggested that he should take the job.

5. The Plaintiff's son said that he did not remember any agreement in Chinese being prepared at that meeting but the discussion was prelimenary to a meeting held in a solicitor's office on June 25th 1964 at which the agreement which is the basis of the claim was signed. I will refer to that agreement as "the agreement" for the purpose of this judgment. The Plaintiff's son said that the main heads of that agreement were considered and settled at the Boon Yuen Restaurant. It is unnecessary to particularize these at this stage.

6. The Defendant said he did not remember seeing the Plaintiff's son at that meeting. But that there were other people present with the Plaintiff.

7. He the Defendant, said that what he wanted to do was to lease the Plaintiff's Restaurant for a period of years. After bargaining, it was agreed that he should have a lease for six years with an option of renewal for two more years. He, the Defendant agreed to buy over the furniture which was then in the Restaurant premises.

8. The Defendant said that the Plaintiff told him that part of the land on which the Restaurant was built was private land but that part was held on a Crown Permit: land held on a Crown permit was not transferable, and that he could not therefore execute a lease in the usual form. If he did so he was liable to forfeit his permit. He suggested that the intention of the parties, i.e. a lease of the premises, could be expressed in an agreement drafted in terms resembling what has been called in this case an employment agreement.

9. An agreement in Chinese embodying the principal terms was drawn up and signed by the parties. It is doubtful if this was done at the meeting in the Restaurant. The evidence of the Defendant is that it was: the Plaintiff's son says it was not. I do not think that it matters very much. The meeting happened a long time ago, some 6 1/2 years, and at least two different dates have been given.

10. What is important is whether there was mention of the Restaurant being partially built on Crown land. The Plaintiff's son has denied this: the Defendant says that it was and the only reason he entered into the agreement was because he could not be granted a lease in law. With some reluctance I accept the evidence of the Defendant on this point. It seems to me that the ability or inability to grant a lease was fundamental to an agreement to run a Restaurant. And that it would be very much in the minds of the parties. I say "with reluctance" for I found the Defendant to be a poor witness. He prevaricated, and his evidence was full of evasions and hesitations. However I accept that at this meeting the inability of the Plaintiff to grant a lease was explained and understood by the parties. And indeed that the agreement made later at the solicitor's office, was made with that well in mind.

11. The Chinese agreement was given to a Solicitor's clerk who used it as his "instructions" and drafted the Agreement.

12. This is dated June 25th 1964 and is in the English language. Its terms may be shortly summarized as follows:-

13. The Plaintiff employs the Defendant as the manager of his, the Plaintiff's Restaurant. The Plaintiff is referred to as "the Employer" and the Defendant as "the Manager" throughout. The Defendant is to have complete control of the running of the Restaurant and guarantees to pay the Plaintiff $1,900 per month as a "guaranteed minimum net profit." This is to be paid monthly in advance. All other profits are for the Defendant. The Defendant is to deposit $15,000 as security for due performance.

14. The Defendant agreed to run the Lin Yuen Restaurant which as I have said was the name of the restaurant of the Plaintiff. The Defendant agreed to protect the good names of the Restaurant and to try to improve its business. He promised to conduct the business strictly in accordance with all Government and local Government Rules and Regulations. He was forbidden to put up any erections on the land. He was to purchase all chattels and utensils necessary for carrying on the business and undertook to keep proper books of accounts. The agreement makes the Defendant liable for all profit tax payable to the Government and the Defendant agreed to indemnify the Plaintiff against any non payment of tax. The period called a period of service is to be six years with a possible extension of two more years.

15. The agreement also provided that the Plaintiff would not part with the premises during the period of the agreement and that he was entitled to appoint a representative to remain on the premises to see that the terms of the agreement and of any relevant Government regulations were being carried out. The Defendant promised to obey any order given to him by the Plaintiff or such representative on his behalf.

16. Clause 7 of the agreement specifically states that the presence of the Defendant on the premises shall not create a tenancy between the parties. The only right that the Defendant has to be on the premises is under the agreement as Manager of the Restaurant.

17. Finally it was agreed that if the Government resumed possession of the land the agreement automatically came to an end and the deposit was to be returned to the Defendant. Mr. Lee for the Defendant asked me to construe this agreement as a sham lease. He said the parties' intention was that the Plaintiff should lease the premises to the Defendant for a period of time. They could not do so. And in making this agreement they were making an agreement tainted with illegality because they were seeking to avoid the provisions of the law as to the non transferability of land held under a Crown permit.

18. In support of this argument Mr. Lee referred to the case of Chau Yu and others v. Kwan Chun Kuen 1963 H.K.L.R. 913. That decision was overruled by the Full Court. It is reported at 1964 H.K.L.R. 309. Part of the headnote reads "In the absence of authorities, the proposition could not be accepted that whilst the court held that a written a greement was a nullity nevertheless the court would look at that agreement to ascertain the terms of an alleged prior agreement. The facts of that case differ from those in the present case. There was an alleged oral agreement for a tenancy in that case. This is not the case here.

19. I do not think that this is a sham agreement. Whatever class of agreement it belongs to it is not a tenancy agreement. It was never the intention of the parties to enter into an agreement for a tenancy. For one reason they could not in law. And that they recognized. That that was so is shown by the wording of Clause 7 of the agreement itself which in expres terms binding on the parties states that no tenancy was created. Indeed the whole case of the Defendant is that this elaborate agreement was necessary because a lease was not possible. I can see no reason here for holding that the Crown or some other authority was being deceived. And that the agreement was a sham.

20. What the intention of the parties as reflected in the agreement appears to me to be is to convey to the Defendant all the interest of the Plaintiff in the premises that he is capable of conveying in law. The agreement gives a licence to the Defendant to remain on his premises for certain purposes. But it does not convey any interest in those premises to the Defendant.

21. In pursuance of this agreement the Defendant entered the premises and opened a Restaurant. He redecorated the premises. And it appears that the Restaurant he opened covers the area not only of the Plaintiff's premises at No. 1 First Street, but also other premises at No. 2 First Street.

22. The Defendant did not employ any of the employees of the Plaintiff. And he did not use the name of the Plaintiff's Restaurant. He opened his own a new Restaurant though he did not register it as a business. He paid the Plaintiff the sums stipulated in the agreement except for the first three months.

23. The 6 years period mentioned in the agreement was due to expire on June 30th 1970. And the solicitors for the Plaintiffs wrote the Defendant a letter warning him of this on March 16th 1970. In that letter the Plaintiff states that he has no intention of renewing the agreement for a further period of two years. The relevant clause in the agreement states that the six years period will be extended for a further two years if the manager (i.e. the Defendant) has made no default in the payment of the monthly guaranteed minimum profit and has duly observed and performed all the terms and conditions contained in the agreement.

24. The Plaintiff's case is that he is entitled to refuse the renewal because the Defendant was in breach of Clauses 1, 4, 8.D, 9 and 16 of the agreement.

25. Clause 1 of the agreement states that the Defendant is to be the Manager of the Plaintiff's Restaurant and that all transactions shall be in the name of the Lin Yuen Restaurant.

26. The Defendant was in breach of this clause from the word go. He redecorated the premises and opened them up in the name of the SAM HUNG GARDEN Restaurant. This covered the premises in No. 2 First Street as well as the premises of the Plaintiff.

27. There was some evidence that the Plaintiff objected to the sign-board of the Defendant's Restaurant. But I have no doubt that the Plaintiff who lives near by and who patronised the Restaurant occasionally knew and acquiesced in the carrying on of the Restaurant under the new name. The Plaintiff did not ask the Defendant to leave the premises nor did he put in a representative as he was entitled to do. He did nothing. I do not see why the Plaintiff should not make use of this undoubted breach of the agreement in refusing to extend the period under clause 14. There is no evidence that the parties entered into a variation of the original contract. The Plaintiff merely forbore to exercise his rights for the six years period.

28. When asked about this the Plaintiff's son said that his father did not endorse the Defendant's conduct, he only tolerated it. He also said that it would have been most difficult to have cancelled the agreement at this stage. To begin with the Plaintiff was receiving nothing: He had parted with all the chattels used in the Restaurant which had been redecorated. I can well understand a person in such circumstances saying to himself. I will not sue now. I will put up with put up with this breach now, but I will not renew.

29. Clause 4 of the agreement imposes a duty on the Defendant strictly to obey Government Regulations. The Defendant was clearly in breach here. He did not have a liquor licence nor a General Restaurant Licence. He wrongly made use of the licences issued to the Plaintiff. But I do not see how the Plaintiff can rely upon this as a breach of the agreement. Both parties must have known that what they were doing was illegal and the Plaintiff cannot rely upon his own illegal acts to prove his claim.

30. However other breaches of this clause were also relied upon by the Plaintiff. The Police at one time were after the Defendant for not exposing his licences in his Restaurant. Of course he could not do so because he only had these of the Plaintiff. There was also evidence that the Defendant did not comply with requests or orders by the local authority to repair certain drainage works. The evidence as to this was inconclusive. I therefore do not think that the Plaintiff can rely on any breach of this clause, clause 4.

31. Clause 8(d) states that the Defendant shall keep proper accounts. The Defendant said he did do this. However he did not see fit to produce them to the court. He also said that the Plaintiff never asked to see the accounts. I do not think that this is enough evidence of a breach of this clause.

32. Clause 9 is more important. This states that the Defendant is responsible for paying all the profit tax "in respect of the said business". That must mean the business of the Restaurant. The Defendant did not do so. He said he received tax assessments from the Inland Revenue Department which he handed to the Plaintiff. The Plaintiff's son said that his father paid tax on the moneys received from the Defendant under the agreement. No tax was paid by the Plaintiff at all.

33. The Sam Hung Garden Restaurant was not registered and the Inland Revenue Department was unaware of its existence. I have no doubt that this was deliberate. Eventually the Restaurant was registered in September 1970 i.e. after the end of the six years period covered by the agreement and back dated certificates were issued.

34. Similarly the Inland Revenue Department caught up with the Defendant. For the years 1964 - 1970, the Inland Revenue Department demanded payment of $60,000 representing tax for the whole period during which the defendant had been operating the Restaurant. This was paid through I understand the Defendant is disputing the amount with the authorities.

35. There is ample evidence therefore of a breach by the Defendant of clause 9. And this is not a trivial matter, for the Plaintiff owns the premises on which the restaurant was conducted.

36. The final clause of which a breach is claimed is clause 16. This states that the Defendant undertakes indeed guarantees to pay the agreed sum of minimum net profits to the Plaintiff, monthly in advance. There was evidence to show that at least on two occasions payment was made in arrears. But it was also not denied by the Defendant that he did not pay the first three monthly payments due until he received a letter from the solicitor of the Plaintiff in March 1970. This shows that there was an undoubted breach of this clause in the agreement.

37. In view of the evidence of the breach of clauses 1, 9 and 16 of the agreement the Plaintiff is entitled to succeed in his claim.

38. Various forms of relief are prayed for in the statement of Claim but they are not very happily drafted.

39. I have found that the Defendant is in breach of the conditions of his licence and he must therefore leave the premises.

40. During the trial it transpired that the Crown permit of the Plaintiff which covers part of the land on which the premises stand has been revoked. Neither the Plaintiff nor the Defendant has any right to remain on that part of the land. I am at a loss to understand why this easily ascertainable fact was not brought to the notice of counsel who appeared for the Defendant. The permit was cancelled on September 15th 1969 more than a year before the Statement of Defence was filed.

41. Be that as it may, any order for possession made by this court cannot affect that portion of the premises which was covered by the Crown permit. There will be an order for possession of all that part of the premises No. 1, First Street Shatin which is now owned or possessed by the Plaintiff: namely all that part which was not covered by the cancelled Crown Permit. The number of which I believe to be T4506. I will hear the parties as to a stay of execution. I understand the Defendant to say that he had never had a Restaurant or a liquor licence even up to now. So I wish to state that any stay granted will not permit the Defendant to continue to carry on a Restaurant unless he has a current valid General Restaurant Licence, or to sell liquor unless he is in possession of a current valid liquor licence: i.e. licences in his own name.

42. The Plaintiff also claims damages. I think that he is entitled to these. He claims for loss of profits and has worked out an amount in an ingenious manner. There is insufficient evidence before me to accept his figures. But I think he is entitled to a sum equivalent to the monthly sums payable under the agreement as though the agreement was still in force up to the date of judgment. This is at the rate of $1,900 per month from July 1st. This comes to $17,100 (1.7.70 - 31.3.71). The Plaintiff is entitled to his costs except for costs thrown away by reason of the adjournment on March 16th.

Representation:

Plaintiff not legally represented.

Martin Lee (Peter Mo & Co.) for Defendant.

Judgment read in Court.