Tse Kwan-so v. Lee Chung-lum t/a New World Manufactory Co

DCCJ006758/1980

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT KOWLOON

CIVIL JURISDICTION

ACTION NO. 6758 OF 1980

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Coram: His Honour Judge Downey

Date of Judgment: 13th May, 1981

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JUDGMENT

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1. This is a most unusual and curious case. Due to the manner in which it has been pleaded, the course which the proceedings have taken, and the fact that the evidence adduced, though not seriously challenged, is not easy to reconcile with some of the facts pleaded, I have found it to be a particularly difficult and worrying case. With all due respect to the parties legal advisers, I do not think that the real issues which have brought the parties into contention have been properly identified and brought before the Court. But, after the most careful and lengthy consideration of all the circumstances of this case, I think that their difficulties, and to some extent mine, stem from a degree of stubbornness, and unwillingness to make full and frank disclosure on the part of their respective clients. Indeed, I am still left with a strong suspicion that these proceedings have been instituted and continued with a view to resolving a difference between the parties which may not be justiciable at all, or, if it is, it is substantially different from the dispute which has been pleaded and placed before the Court.

2. The plaintiff seeks to recover possession of premises on the fourth floor of 493A Nathan Road, Kowloon, on the ground that the defendant's alleged monthly tenancy thereof was terminated by a notice under section 122 of the Landlord and Tenant (Consolidation) Ordinance (Cap.7), dated the 13th November 1979 and taking effect on the 30th May 1980. In essence, the defendant's contention is that the present proceedings are misconceived because the plaintiff is estopped, by his conduct, from denying that the defendant is a tenant of the premises for a fixed term of three years from the date of expiration of a previous tenancy, namely, the 30th June 1979.

3. At one stage, the question whether the tenancy was governed by Part II or Part V of Cap.7 appeared to be in issue. Fortunately, it is not strictly necessary for me to make any specific findings of fact on this aspect of the case, as the defendant eventually conceded that the premises had been, and were being, used for non-domestic purposes. But, in case I have misunderstood the scope of this concession, I have no hesitation in finding, on the evidence before me, that the premises have been used primarily, if not wholly, for business purposes, at all material times. Although it is not now a live issue, it may be helpful to refer briefly to the manner in which this aspect was pleaded, as it may shed some light on the conduct and intentions of the parties during the period between April and November of 1979.

4. The previous tenancy was for a period of 2½ years, commencing on the 1st January 1977, at a monthly rental of $1,700.00. In paragraph 3 of the Particulars of Claim it is pleaded as having been made between the plaintiff and the defendant. Although this is expressly admitted (by paragraph 2 of the Defence), strictly speaking it is inaccurate. In the title of the writ the defendant is referred to as "LEE CHUNG LUM trading as NEW WORLD MANUFACTORY CO.", whereas the previous tenancy, which was produced as exhibit P3, clearly shows that "Lee Chung Lum" was the tenant. There was no reference in exhibit P3 to his trade or business name. Indeed, clause 8 of the certified translation (Exh. P3A) of that agreement states: "The said premises are allowed for domestic purposes ..... Party B (i.e. Lee Chung Lum) shall not assign the said premises to any other person and not allow for coffin shop business." I pause to remark that it is common ground that there is no reference to "coffin shop business" in exhibit P3. How it found its way into the certified translation is one of the several unexplained curiosities of this case! In the next paragraph, the plaintiff avers that, upon the expiration of the term "of the said Tenancy Agreement" the defendant "became a monthly tenant and both parties agreed to adjust and/or increase the rental to $2,000.00 per month ....." It is then alleged (in paragraph 5) that

"the said premises were let by the Plaintiff for domestic purposes since the commencement of the tenancy but were subsequently used by the Defendant for business purposes under the style or firm name of "NEW WORLD MANUFACTORY COMPANY" and have continued to be so used by the Defendant at the commencement of these proceedings ....."

and concludes by alleging that Part II of Cap.7 does not therefore apply.

5. In my view, these paragraphs are somewhat misleading. They suggest that the change of user from domestic to nondomestic purposes occurred after the 30th June 1979, whereas, according to the undisputed evidence of Mr. Leung Chi Kuen the plaintiff's lawful attorney, the premises were being used by the defendant as an office for his import/export business long before that date. Nowhere in the pleadings is there any allegation as to the primary user of the premises, as, in my view, there should be in cases of this kind. Paragraph 4 of the Defence sheds no light on this aspect. It is no more than a prolix account of the defendant's occupation of the premises since 1967, presumably aimed at showing that over that considerable period the plaintiff has acquiesced in the premises being used partly for domestic and partly for business purposes.

6. When this case, which had been placed on the "running list", was called, the defendant was not in Hong Kong. With knowledge of the date of trial, he chose instead to go to China. I refused Mr. Ng's application for an adjournment, because, on the material then before me, it seemed to me to be wholly lacking in merit. Furthermore, I considered that the plaintiff should not be forced to accept further delay in proving his claim, simply because the defendant appeared to attach more importance to going to China than remaining in Hong Kong to defend his right to remain in the premises. However, in the course of the examination-in-chief of Mr. Leung Chi Kuen, it appeared that Mr. Leung was testifying to facts which not only differed from his pleaded case, but also offered some support for the defendant's plea of estoppel. After a short adjournment, Mr. Leung completed his evidence in-chief, and I granted Mr. Ng's renewed application for an adjournment, so that the defendant could have an opportunity of giving evidence and dealing with this unexpected development. More surprises were in store! At the adjourned hearing, Mr. Ng did not cross-examine Mr. Leung at all. Nor did the defendant give evidence in support of his plea of estoppel or contradict any of Mr. Leung's evidence. Instead, Mr. Ng submitted that the plaintiff had failed to prove his case, as pleaded. He further submitted that the evidence showed that the parties had agreed upon a new term of 3 years for non-domestic purposes.

7. In my view, this is not one of these cases where the facts and issues are so plain and straightforward that the mere fact that the evidence of the plaintiff has gone unchallenged is sufficient to enable the Court to be satisfied on the balance of probabilities that he has proved his case. In this case, I am not obliged to accept Mr. Leung's evidence. Difficult though my task may be, I must still attempt to evaluate it, in the light of the undisputed facts and inherent probabilities of the case. Before I do so, it may be useful to deal with the basis of the defendant's plea of estoppel. This is not easy, because I have not had the benefit of any legal argument on this fertile, but often elusive, legal device which enables a Court to do justice in individual cases.

8. As Lord Denning, M.R., has recently reminded us, it lurks in an ancient house containing several rooms and some rickety furniture. Cf. McIlkenny v. Chief Constable of West Midlands [1980] Q.B. 283, 317. In any case where it is resorted to, it is, in my view, useful, if not absolutely essential, to make some attempt to identify its shape or form before considering whether the evidence is sufficient to support it. In this particular case, I do not think that the defendant is seeking to rely on that kind of estoppel, which is commonly referred to as promissory estoppel. He is not, in my view, saying that he has remained in the premises, after the expiration of his previous fixed term tenancy, in reliance upon a promise or assurance by the plaintiff that he would grant him a further fixed term tenancy for 3 years. He is, in effect, saying that he has remained in the premises because the plaintiff had already agreed to renew his tenancy for another 3 years at an increased rent. He cannot prove an express contract to grant a new Tenancy. At best, he can only show that the plaintiff, by his conduct, is estopped from denying the existence of such a contract.

9. By resorting to the device of estoppel, it seems to me that the defendant is seeking to adopt the argument advanced by Professor Treitel, in the 5th edition of his textbook on the Law of Contract at ...(illegible) for circumventing the general principle that silence on the part of the offeree does not ...(illegible) of the offeror's offer. Some support for this argument can be found in the cases of Rust v Abbey Life Insurance Co. [1978] 2 L1 Rep 386 at 393, and Spiro v. Lintern [1973] 1 WLR 1002, 1011.

10. In my view, these authorities suggest that a party may be estopped by his silence, if the circumstances are such that he came under an "equitable duty to speak", or by his overall conduct, if it is such as to lead his opponent to reasonably believe that he was under some specific legal obligation towards him, and that belief or misunderstanding was known by the party to be estopped.

11. The first prop to the defendant's contention is to be found in certain correspondence between him and the plaintiff's solicitors in March and April 1979. The second prop consists of the plaintiff's acceptance of rent, at an increased rate, after this correspondence had taken place, and after the termination of the fixed term tenancy. In order to assess the strength of these props, I must consider the evidence before me, in the form of the undisputed facts and the testimony of Mr. Leung Chi-kuen.

12. On the 22nd March 1979, the plaintiff's solicitors wrote to the defendant in the following terms:-

Yours faithfully,"

13. The defendant replied to this by a letter dated the 6th April 1979 in the following terms:-

For quite obvious reasons, this reply could not amount to an acceptance of an offer by the plaintiff, assuming that the letter of the 22nd March 1979 amounted, in law, to an offer. At best, it was a counter-offer by the defendant, whereby he expressed a clear desire to renew the tenancy for 3 years at an increased rental of $2,000.00 per month. Although this counter-offer had, in effect, been solicited by the plaintiff, by his initiative in opening negotiations for a new lease, it received no reply. It wasn't even acknowledged by his solicitors. Nor did Mr. Leung raise the matter with the defendant when he collected the rent for May 1979. If the increased rental, suggested or offered by the defendant, was not then acceptable to Mr. Leung or the plaintiff, one would surely expect this to be mentioned at the next meeting between the parties. I do not know why nothing was said in May 1979. about a new lease or the defendant's letter to the plaintiff's solicitors. It has simply not been explored before me by either party's legal representative. Having taken the trouble to instruct solicitors to initiate the question of a new lease - the same firm of solicitors which subsequently served the notice of termination and conducted these proceedings - I consider that the plaintiff came under some duty to disclose his intentions, having regard to the clearly expressed desire on the part of the defendant for a further lease for 3 years at an increased rental, and his request to be sent a draft tenancy agreement.

14. Nevertheless, in the absence of any evidence from the defendant as to his state of mind in May or June of 1979, I do not think that I can properly infer that he then thought that the plaintiff was under a specific legal obligation to renew their relationship for a further term of years. The plaintiff's silence is open to criticism, but is also consistent with a decision to stand on the provisions of the Tenancy Agreement, which would still govern their relations for the next two months. I would have found it easier to draw the necessary inferences favourable to the defendant, if I thought that he fell into the category of the usual or average tenant, who regularly appears as a defendant in the District Court. But, at the risk of engaging in speculation, unsupported by actual evidence, I do not think that, on the basis of all the circumstances of this case, including the manner in which it has been conducted at all stages, I can regard the defendant as a litigant totally ignorant of the Law, bereft of the benefit of legal advice, and so obsessed with the need to make a living that he cannot afford the time and trouble to come to Court and vindicate his legal rights.

15. From the little I can legitimately glean from all the circumstances of this unusual case, I do not think that he is so lacking in worldly - wisdom as to deserve any special consideration when the question at stake is the proper inference or inferences to be drawn from proved or undisputed facts.

16. The defendant's second prop is, however, made of somewhat stronger material, because the defendant is able to pray in aid the undisputed fact that the plaintiff, through his agent, Mr. Leung, was, in principle, agreeable to the grant of a new lease for 3 years at a rental of $2,000.00 per month, and, more importantly in fact, accepted payment of such sum from July 1979 (i.e. after the expiration of the previous Tenancy Agreement) until November 1979, when the notice of termination was given to the defendant. Strictly speaking, I only have evidence that such increased rental was paid for the month of July 1979, but Mr. Leung's answers to general questions regarding the manner in which rent was paid and recorded after the 30th June 1979 are such as to entitle me to infer that rent at the rate of $2,000.00 was paid during this period. I do not know what happened between service of the Notice of termination in November 1979 and May of 1980. By the writ, issued on the 16th June 1980, arrears of rent and/or mesne profits at the rate of $2,000.00 per month are claimed from the 1st June 1980. Interlocutory proceedings to obtain interim payments under Order 29 r.18 of the Rules of the Supreme Court similarly sought payment of rent or mesne profits from the 1st June 1980.

17. If I have correctly understood Mr. Ng's final submissions, he is contending that the evidence adduced on behalf of the plaintiff proves that the plaintiff had agreed to the defendant enjoying the status of a tenant of the premises for a period greater than that of a monthly tenant. Accordingly, the plaintiff has failed to discharge his burden of proving that the defendant was no more than a monthly tenant of the premises. With all due respect, this forensic approach to the problems of this case does not really assist me in my consideration of his client's plea of estoppel. However, it does serve to remind me that I can only make an order for possession against his client if the plaintiff has satisfied me, on the balance of probabilities, that he is entitled to the relief he seeks by the present proceedings.

18. Mr. Leung's acceptance of rent, if unexplained, would, I think, support the defendant's plea of estoppel. Not only is it at an increased rate, but it is the very figure which the defendant counter-offered in April. But, he says that when he spoke to the defendant at the beginning of June - when he collected the last rent under the old Tenancy Agreement - the defendant said he wanted a lease for 2½ years, and he wanted it to be for domestic purposes, whereas Mr. Leung insisted that it must be stated in their agreement that the premises were to be used as an office. That was the use to which the premises had been put for many years. Mr. Leung says that the defendant refused to sign an agreement, and it was because he had nothing in writing, and didn't know what the defendant's intentions were, that he eventually instructed solicitors to issue the notice of termination. If that is the case, then in my view, no estoppel would arise. Having regard to the fact that the plaintiff was clearly not agreeable to continuing the tenancy at the old rent, as is evident from the letter of the 22nd March, it would be perfectly natural and understandable for the plaintiff, through his lawful attorney, Mr. Leung, to accept the increased rent which the defendant offered, because the defendant was still enjoying possession of the premises. It was perfectly natural for him to accept the increased rent until the defendant made up his mind as to the lease. This evidence of Mr. Leung with regard to his conversation with the defendant has not been challenged in cross-examination, nor has it been contradicted by any evidence from the defendant. It may be, - indeed I think it is very likely - that the defendant would only be willing to pay an increased rent for something more than a monthly tenancy. But, it seems to me that I have to ask the question: for what purpose or reason was it accepted rather than for what purpose was it paid. As it is stated in Woodfall's Law of Landlord and Tenant (28th edition) Volume I at page 255: "The question is, quo animo the rent was received, and what the real intention of the parties was."

19. I find it a little difficult to understand why the defendant should ask for a lease for 2½ years, and for domestic purposes. Very little would be gained by either of these. A lease for 2½ years would, of course, be within Part V of Cap.7, and the defendant would be entitled to receive advance notice of the plaintiff's intention to terminate the relationship, even though it would terminate by effluxion of time. But he would achieve much the same from a 3-year lease. The only difference would be that he wouldn't necessarily know, until the end of the term, that the plaintiff did not intend to renew. So far as having the agreement to specify that the premises were to used for domestic purposes, I can't see any advantage to be gained from this, because quite clearly, on the facts before me now - and I have no reason to suppose that they would change in the future - the primary user was clearly non-domestic, so that the benefit of Part II of the Ordinance would not attach to the tenancy, even though it was expressed to be for domestic purposes. But, all this is speculation. It may very well be, indeed, that the defendant was hoping - bearing in mind that this took place in the summer of 1979 - that legislation would be introduced to give protection to tenants such as himself, and that he might be better off with something less than a 3-year lease, if that were the case. But, as I say, this is all speculation. I must decide this case on the evidence I have heard, and the only hard evidence which I have is that of Mr. Leung. I have considered very carefully whether I can accept his account of what led up to his accepting rent at the rate which the defendant had counter-offered. I have considered it against the probabilities, but as they are mainly of a speculative nature, I feel, with a certain amount of hesitation, that I can only come to the conclusion that in June, or by June 1979 the defendant had had second thoughts about the matter, and the parties had not reached agreement for a new lease. I come to that conclusion, with some reluctance, because I think the defendant is entitled to feel that the plaintiff should have replied to his letter. He had asked for a draft agreement to be sent to him. If that had been done, it may be that this dispute would never have come to Court. But, if Mr. Leung's evidence is accepted, that at the beginning of June, when he indicated to the defendant that he was willing to grant a lease for 3 years at $2,000.00 per month, the defendant indicated that he only wanted a lease for 2½ years, then there would be no point in sending a draft agreement to him at that stage. The plaintiff's solicitors wouldn't know what to put in the draft, as they didn't know, as Mr. Leung put it, what the defendant's intentions were. In all the circumstances, and bearing in mind that I have only had evidence from the plaintiff's agent, the only inference which, I think, can properly be drawn is that a monthly tenancy arose upon the termination of the previous tenancy. It is not the only inference which can be drawn, but I think that it is the only reasonable and proper inference which can be drawn in the circumstances, and in the light of the evidence in this case. Accordingly, I am not satisfied that the defendant has discharged the onus, which I think is upon him to prove an estoppel, and because I have no reasons to consider that Mr. Leung was an untruthful witness - his evidence was wholly unchallenged - I consider that the plaintiff has just established, on the balance of the probabilities, that the defendant was merely a monthly tenant of premises, which were being used and were let for business purposes. This is made clear by the fact that the rent was paid by a cheque drawn on the account of the defendant's firm, and, although I haven't seen any of the rent receipts, Mr. Leung said that he endorsed the receipts to that effect, as he wanted to make it quite clear that he was accepting the rent for premises which were being used for business purposes. For these reasons, I think that the plaintiff has proved his claim for possession, and I so order that possession be delivered to the plaintiff.

Representation:

Mr. Yen of Messrs Lo and Lo for the plaintiff.

Mr. Steve Ng of Messrs Kwan and Kwan for the defendant.