Pak Tung Co Ltd v. Warner-lambert (Hong Kong) Ltd
Read the full judgment text of HCA 6043/1980 on BabelCite. This High Court CFI judgment.
1. In these proceedings, two agreed issues were framed for the determination of the Court, namely :
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HCA006043/1980
Coram: Liu, J. in Court. Date of Judgment: 1st October, 1981. ----------------- JUDGMENT ----------------- 1. In these proceedings, two agreed issues were framed for the determination of the Court, namely :
2. By mutual agreement, the plaintiff was to carry the burden of proof. 3. Paragraph 3 sets out verbatim Clause 7 of a Tenancy Agreement in writing made between the plaintiff and the defendant in respect of the whole of the 17th floor of East Town Building at No.41, Lockhart Road, Wanchai, whereby the defendant held the said premises under the plaintiff for a term of three years commencing from the 1st October, 1977 at the rental of $13,200 per month and air-conditioning charges at the rate of $3,490 per month. 4. There was submitted by consent a table of various tenancy interests in respect of the 16th, 18th, 19th and 20th floors of the same building, of which the plaintiff is the owner. The tenant of the 18th floor, Messrs. Schenker ASG (HK) Ltd., formerly on a three year tenancy commencing from the 1st of November, 1977 at precisely the same rent and charges but without an option to renew, negotiated with the plaintiff near the expiration of its tenure sometimes in May 1980. Their negotiation yielded fruit, and a verbal agreement was reached on the 8th of May 1980, which was finalised by the payment of the balance of the additional deposit, I believe, on the 14th of May as evidenced by "P.3". The new term was for a like period of 3 years with rental on an escalating scale of $49,800 for the first year, $54,780 for the second, $60,010 for the third and air-conditioning charges at a constant rate of $7,700 a month throughout. 5. Clause 7 reads as follows:
6. On this clause, issue was joined, and the dispute between the parties to these proceedings revolved around the question of legal construction. On the one hand, the plaintiff contented that the market rate was to serve as the criterion for the revised rental and air-conditional charges on a renewal, the option of which had duly been exercised by the defendant. In sharp contrast, Counsel for the defendant submitted that market rental was never intended to be the yardstick and that on exercising the option to renew, the guideline was the level of rentals and charges which could then lawfully be demanded from the existing tenants of equal areas in the same building. Thus, it was urged upon me that the defendant's liability in a validly exercised option clause was the mean of all the then current lawfully recoverable rentals and charges as set out in the table. The difference is vast. 7. It was strenuously pressed on behalf of the defendant that if the parties had merely intended to be governed by the market rental, express reference thereto could have been easily made. Under Clause 7, so ran Counsel's argument, this Court should be guided in this assessment by an average lawfully recoverable current rental and charges then due from the sitting tenants. Conversely, I should have thought, if the average of current rentals and charges then lawfully recoverable had been contemplated by the parties to said Tenancy Agreement, their wishes could likewise have been implemented by a clear reservation. To construe "rents and air-conditioning charges that the Landlord is demanding" as meaning rentals and charges lawfully recoverable would do, in my view, much violence to the language of the option clause. 8. Mr. Hung assured me that the sums charged of Messrs. Schenker ASG (HK) Ltd. under the new lease for three years were fair, reasonable and commensurate with the current market rate. I accept his evidence, but that is not directly relevant to what I have to decide. What has to be determined here is the true purport of Clause 7. 9. The crucial expressions in Clause 7 would appear to be: "revised rent and air-conditioning charges", "the Landlord is demanding at time of exercise of this option" from "other tenants of similar areas". A different rate, a revised rate, was clearly envisaged. It is the present-day dictates of business efficacy that rents and charges are not to stay stagnant, and I need hardly strive to search beyond the very language of the option clause for a legitimate judicial basis on which to uphold such universally recognized economic concept. To be inflexibly tied to any existing rental is a fetter wholly repugnant to the coveted right of a landlord to revising rent without hindrance on a renewal. Moreover, adherence to previous rates cannot be fairly described as a revision, and linking the future with the past would be contrary to the spirit of the spirit of the elaborate calculation devised by Clause 7. Had a plain reference to an existing or past rate been intended, it could have been so expressly provided for. In fact, it would have been much simpler to prescribe for the continuation of the same rental and charges or for a specified percentage increase. The combined effect of these crucial expressions in Clause 7 leaves little doubt as to the true intention of the contracting parties. "Demanding" must be given its literal meaning of "asking" in the context of Clause 7. On its true construction, rental and charges are to be revised, and revised to the rate which the Landlord would, in all the circumstances, reasonably ask from every existing tenant on a like area on any floor between 11th and 20th as if he were seeking a further term simultaneously with the defendant's exercise of its option to renew. The reference to "other tenants" was evidently inserted to exclude individual elements and emphasize the general level of charges reasonably exactable from all the tenants of similar areas then hypothetically under threat of instant dispossession. 10. Much play was also made of the phrase "by reference to", but little real significance may be attached to it. 11. In my view, sums higher than market rate were stipulated for. On renewal, the rate of rental and charges was to be such as would be acceptable by any sitting tenant of a similar area as if he were then seeking a new term on pain of imminent eviction. In that respect, I am in agreement with the submission of Mr. Tang that not merely market rental was bargained for. In my judgment, under Clause 7, rental and air-conditioning charges are to be calculated in line with those which the Landlord may reasonably ask from a sitting tenant negotiating for the right to continued occupation of a similar area at the time when the defendant exercises his option. 12. I have accepted the evidence of Mr. Hung. High as the proposed revised rental and charges may well appear to be, Mr. Hung maintained that they were no more and no less than the market rate for similar premises in comparable buildings of like status, with like facilities and under like management. I feel constrained to hold that the plaintiff's final offer falls within the range of the revised rental and charges envisaged by Clause 7. In the circumstances, it remains for me to assess the rental and air-conditioning charges, as I have been so invited, on the same escalating scale for rental and the same fixed scale for air-conditioning charges as those payable by Messrs. Schenker - ASG (HK) Ltd. under its three years' lease of the 18th floor of the same building commencing from the 1st of November 1980. I order, therefore, that rental and air-conditioning charges be assessed accordingly. 13. With blessings from Counsel on both sides and for the reasons I have expressed but unrecorded, I make no order as to costs for the action proper and the trial of these issues.
Representation: Mr. Patrick Fung instructed by Helen A. Lo & Co. for the Plaintiff. Mr. Robert Tang and Mr. Y.C. Mok instructed by Hastings & Co. for Defendant. |