Tsui Lam-wah v. Tom Young and Others
Read the full judgment text of DCCJ 5283/1980 on BabelCite. This District Court judgment was delivered on 23 February 1981 before B.T. Caird.
Landlord and tenant – possession – subletting – Landlord & Tenant (Consolidation) Ordinance Cap. 7 – s.53(2)(e) – whether contractual tenancy must first be determined before statutory remedy pursued – s.50(6)(j) – exclusion from Part II of tenancies for fixed term of three years or more – Ordinance No. 6 of 1980 – retrospective effect to 18 December 1979 – sham transaction – corporate veil – whether subletting by subtenant caught by s.53(2)(e) – tenancy of Flat E 20/F Block 7 Chi Fu Fa Yuen, Pokfulam – oral arguments – terms of settlement – post-war premises let for domestic purposes – tenancy agreement dated 30 March 1979 for three-year fixed term – no prohibition against subletting – sublease to Rassil Limited (company wholly owned by 1st defendant's wife) at nominal rent with $36,000 'premium' – further sublease to 3rd defendant – whether s.53(2)(b) requires determination of contractual tenancy – LO Wah and LEUNG Wai v. CHUI Fun followed – Huggins JA on s.52(1) – whether transaction with Rassil Limited a sham – Salomon v. Salomon, Lee v. Lee's Air Farming Ltd, IRC v. Sansom applied – whether s.50(6)(j) excluded tenancy from Part II at time of agreement – whether s.5(i) of Ordinance No. 6 of 1980 catches tenancies previously excluded by s.50(6)(j) – distinction between 'tenant' and 'subtenant' in Part II – plaintiff's action fails – 1st and 2nd defendants entitled to court fees and disbursements.
Legal issues: Whether s.53(2)(e) is a rule of law requiring determination of contractual tenancy before a statutory remedy is pursued · Validity of the subletting transaction between 1st defendant and Rassil Ltd · Effect of s.50(6)(j) in excluding the tenancy from Part II of the Ordinance · Effect of Ordinance No. 6 of 1980 on the subletting claim
Outcome: Plaintiff's action for possession dismissed; 1st defendant's counterclaim not considered in view of the court's findings.
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DCCJ005283/1980 IN THE DISTRICT COURT OF HONG KONG HOLDEN AT VICTORIA CIVIL JURISDICTION ACTION NO. 5283 OF 1980 -----------------
----------------- Coram: H.H. Judge Caird Date of Judgment: 23 February 1981 ----------------- JUDGMENT ----------------- 1. The plaintiff as owner seeks possession of premises known as Flat E, 20/F., Block 7 Chi Fu Fa Yuen, Pokfulam these being post war premises let for domestic purposes. 2. Originally the third defendant was the second defendant and it was during the course of the hearing that I delivered a ruling allowing Miss Ho, Counsel for the plaintiff to file amended particulars of claim, which pleading added Rassil Limited as second defendant. 3. Before the action commenced I was handed terms of settlement between the plaintiff and the then second defendant, SO Kwan-kit, the effect of which is that should the plaintiff succeed in obtaining possession, the second defendant would obtain a tenancy from the plaintiff in the same terms as extant between Rassil Limited the present second defendant and SO Kwan-kit, the present third defendant. 4. Plaintiff's case 5. The plaintiff's claim for possession is based on the provisions of Section 53(2)(e) of the Landlord & Tenant (Consolidation) Ordinance Cap. 7 and was simple. 6. His case originally was that the first defendant had sublet to the third defendant. However, as a result of evidence given by the first defendant it was clear that there had been a subletting from him to the second defendant and in turn a further subletting from the second defendant to the third defendant. Mr. Young in evidence explained that the second defendant was a company "wholly owned" by his wife (I assume some other person holds one share) and he through Taipan Agencies Corporation acts as Manager of Rassil Limited. 7. Accordingly it was not in dispute that there had been a subletting of the premises and the plaintiff relied on this to advance his claim for possession. In passing I would observe that the plaintiff owns other properties and should not be inexperienced with respect to the ramifications of tenancy agreements and other matters pertaining to Landlord & Tenant legal relationships. 8. Defendant's evidence 9. Mr. Young gave his evidence in English representing himself and Rassil Limited. Mr. Young is in the real estate business, the buying and selling of property, developing property and acting as an estate agent. He manages a group of companies in some of which he and his wife hold a majority shareholding, others with "financial partners". He claimed that because real estate was his business he took a strong interest in real estate and landlord and tenancy law and he informed the Court that a large part of his business consisted of taking five or six year leases of premises, improving such premises by decoration or by putting in furniture and then subletting "hopefully at a profit". He explained that he doesn't always make a profit and commented rather wryly that when he took a loss "owners seldom complain" but when he made a profit "human nature usually comes into play and many owners do complain". He asserted that a section of the Landlord & Tenant (Consolidation) Ordinance that he always been interested in was Section 53(2)(e) and at the time the agreement was entered into with the Landlord (30th March 1979) he was expecting that rent control would be up-dated. An expectation which was justified as all corporate and consular domestic tenancies subsequently came under the umbrella of the Landlord & Tenant (Consolidation) Ordinance Cap. 7. 10. Mr. Young explained that in order to circumvent the legislation he adopted a scheme described in his own terms as a "manoeuvre" which consisted of he as tenant first entering into an agreement with the plaintiff:- Pla with its translation Plb. This agreement was dated the 30th March 1979 and was presented by him to the plaintiff in a standard form in the Chinese language and did not contain any prohibition against subletting. Originally the translation Pl(b) adduced in evidence by the plaintiff did contain a prohibition against subletting, but on this being pointed out by the Court it was agreed by both parties that no such prohibition appeared in the original Chinese document. The next stage of Mr. Young's "manoeuvre" was to enter into an agreement dated April the 20th 1979, with Rassil Limited, whereby the premises were sublet for a term of three years from the 14th April 1979 with a right of renewal for a further three years as from the 14th April 1982. The original rent for the first period of three years is at the rate of $10 per month inclusive of rates and management fees and the further term was to be let at an agreed rental of $2,000 per month. This in respect of the premises originally let by him from the landlord at $1,400 per month. In the agreement with Rassil Limited a special condition appeared
11. This document was unstamped and upon the Court pointing this out to Miss Ho she properly did not take any stamp objection. 12. The next stage in Mr. Young's scheme was for Rassil Limited to let the premises to Maria Ying "for the residence of Madam SO Kwan-kit (hereinafter called the occupier)". The term of this agreement was two years from the 13th June 1980 to the 14th day of June 1982 at a monthly rental of $2,100. 13. I was conscious of the possibility of Mr. Young with hindsight, after the enactment of the Landlord & Tenant (Consolidation) Ordinance number 6 of 1980, back-dating some of his documents and was anxious to investigate the validity of his claim as to the structure of the scheme as explained by him. Of considerable importance was the production of the agreement between Rassil Ltd. and Maria Ying taking her interest in the premises for Madam SO Kwan-kit. This was produced during the plaintiff's case as a plaintiff's exhibit. At the resumed hearing Mr. Young explained that the documentation between he and Rassil was of an informal nature because Rassil Ltd. did not stamp the document. He produced a number of other documents for inspection together with photostats for retention by the Court showing the same "manoeuvre" adopted in respect of other properties. Many of these documents were stamped and it was clear that outside of family relationships matters were treated more formally. 14. In response to questions from the Court Mr. Young acknowledged that there were no receipts, company minutes or memoranda to show payment of the premium of $36,000 referred to in the agreement between he and Rassil Ltd. In his own words "although no physical payment has been made, this amount is deemed to a loan by myself to Rassil .... to be repaid from proceeds of any tenancy renting out the premises". 15. A further question was put by the Court
A."Rassil Ltd. rightly or wrongly has not made any accounts." Later he went on to say that the object of the exercise was to pay as rents come in, and he frankly acknowledged that being in control of the situation he could write off this debt, or postpone payment at his pleasure. The 1st Defendant later went on to explain that Taipan Agencies, corp a firm operated by him, managed financial dealings in respect of all internal arrangements. As I understand it, this includes companies where he or his wife, or both, are the dominant shareholders. So in effect Taipan Agencies acted as a bank for these companies. He acknowledged that in Rassil's books no record of income would appear from Miss So but that this would be recorded "in Taipan's Books". 15. It was obvious that Mr. Young was seeking the best of both worlds, entering into a "manoeuvre" in an endeavour to legally sublet premises at a greatly enhanced rental (50%) and at the same time being able to control the amount, and timing of any payment of premium. 16. In my view, the 1st defendant, Tom Young, projected as a brash confident, energetic businessman, and possibly, in the vernacular used by our cousins on the other side of the Pacific, could be regarded as a "hustler". His activities may be described as somewhat parasitical and in a social context cannot be condoned, as adding heat to an inflated rental situation. I closely observed his demeanour as well as taking cognizance of his concessions. His credibility was considerably enhanced when he responded during cross-examination, to an allegation that he had misled the landlord as to his intending to reside in the premises personally saying the landlord may "have got the impression" that he intended to reside there personally. There was no attempt to hide his company's lack of minutes, memoranda or indeed the fact that the premium of $36,000 has not yet been paid. I am of the opinion Mr. Young is a shrewd but honest businessman operating always within what he believes to be the "letter of the law", I also believe him to be possessed of his own standards of commercial morality. I consider him to be a scrupulous witness of truth and accept his evidence in all respects, particularly as to dates when he entered into this scheme and as to his intentions as to carrying out the necessary documentation pertaining to the "manoeuvre". 17. Although he presented his own standard form of tenancy agreement to the landlord nevertheless the plaintiff is not inexperienced in these matters and has only himself to blame if he executes a tenancy agreement without any prohibition against subletting, if this at that time, had any tendency to prejudice his position. 18. Conclusions as to fact 1. Plaintiff and the 1st defendant entered into a tenancy agreement dated 30th March 1970 which agreement was for a term of three years and contained an option to renew for a further period of three years. The agreement did not contain any prohibition against subletting. This agreement was entered into prior to the 18th of December 1979. 2. On or about the 14th of April 1979 the 1st defendant sublet the premises to Rassil Ltd. the present 2nd defendant. This was effected by an agreement in writing dated 14th of April 1979 and contained the following terms:
3. That the premium of $36,000 has not been dealt with in the Books of Account of Rassil Ltd. or Thomas Young. 4. That Mr. Young acknowledged the possibility that he may at some future date write this off in whole or in part. 5. The 2nd defendant, Rassil Ltd., sublet to Maria Ying on behalf of the present 3rd defendant SO Kwan-kit, this for a term of two years at a monthly rental of $2,100, commencing on the 13th day of June 1980. 19. Defendant's case in Law 20. A Mr. Young argued cogently that the landlord could not use Section 53(2)(b) before the contractual tenancy determined, stating that possession may only be obtained when "no contractual or common law considerations arise". He went on to assert that Sec. 53(2)(e) was not a rule of law. It "is a qualification" and could only apply when a contractual tenancy is over and the tenant remains as a statutory tenant enjoying the protection of Part II of the Ordinance. 21. I consider myself bound by the decision of the Court of Appeal in LO Wah and LEUNG Wai v. CHUI Fun(1). The Court acknowledged the distinction between the legislative position in Hong Kong and that of England whereby in England a contractual tenancy must first be determined before a party may pursue a statutory remedy. As was said by Huggins, J.A.:
I reject Mr. Young's arguments and have dealt with this at more length than is necessary, purely to record the position in the event of there being an appeal against this part of my judgment. 22. B. Validity of the transaction 23. The transaction between the first defendant Tom Young and Rassil Ltd. as far as the documentation is concerned gives the appearance of an arm's length transaction. However, one must consider the failure to effect payment of the premium recorded, which gave the opportunity taken by Miss Mary Ho to submit that the transaction was a sham. 24. The first matter is the status enjoyed by Rassil Ltd. It is clear law and well established that merely because someone is a director of a company (in this case controlling the management of the company) this is no impediment to his entering into a contract with the company. If authority was needed for this proposition Lee v. Lee's Air Farming Ltd.(1) is clearly in point following the earlier well known cases of Salomon v. Salomon and Co.(2) and Inland Revenue Commissioners v. Sansom(3). 25. Although there have been no records kept in the books of Rassil Ltd. or any records by Tom Young other than the agreement tendered in evidence, it is my view that either Rassil Ltd. or Tom Young would be able to enforce the agreement entered into. This of course is well illustrated by the fact that if Rassil Ltd. were to go into liquidation or receivership, or if a majority the shares were sold and control pass to a third party, then the agreement could clearly be enforced as against Tom Young. This despite his expressed intention of effecting payment at some later date and taking into account the possibility, conceded by him, that all or part of the premium may be written off. Again any personal representatives of Mr. Young could if necessary seek to enforce the agreement. 26. I have considered the position of contributories and take the view that as the agreement was entered into with the intention of making a profit subject to usual "Business Risk" the position of any contributory should be enhanced, provided of course events approximate the course charted for them by Mr. Young. I have no hesitation despite the concessions made by Mr. Young in response to questions from the bench that the transaction with Rassil Ltd. as entered into was a valid one and not a sham or a mere simulacrum. 27. C. The Effect Of Section 50(6)(j) 28. The effect of subsection 6 of section 50 is to list a number of tenancies and sub-tenancies to which Part II of the Ordinance does not apply. This section was amended by Ordinance No. 6 of 1980 when subsections (a), (j) and (k) were all repealed. However at the time Mr. Young entered into his agreement with Rassil Ltd. subsection (6)(j) applied and this reads as follows:-
29. In the instant case the agreement entered into between the Plaintiff and the first Defendant was dated the 30th of March 1979 clearly within the period 31st of December 1975 to the 18th of December 1979. The agreement provided for a fixed term of three years. 30. I am of the opinion that at the time this agreement was entered into Section 50(6)(j) applied and that as from that moment under the legislation then extant, the provisions of Part II did not and could not apply to this tenancy. 31. D. Effect of Ordinance No. 6 of 1980 32. This Ordinance which came into effect in January of 1980 has retrospective effect back to the 18th of December 1979. However, it must be remembered that I am dealing with events which occurred in March to June of 1979 and the documentation pertaining to those events. 33. The statutory position prior to the 18th of December, insofar as subletting was concerned, was as follows:
The position now is as follows:
34. I am not concerned with what may or may not be the position between the 16th of December and the enactment of Ordinance No. 6 of 1980 and for the purposes of determining this action merely have to refer to the position prior to the 18th of December vis-a-vis the position post 18th of December. 35. It is clear from the wording of Section 5(i) of 1980 that this does not apply to any tenancy to which Part II did not apply between the 14th December 1973 and the 18th December 1979, as the premises concerned were successfully excluded by virtue of Section 50(6)(j)(i). On the facts, as I have determined them, Section 53(2)(e) neither in its present nor in its former form can apply and the law, as to subletting, governing the tenancy between the plaintiff and the 1st defendant, is that of contract. 36. As there is no prohibition against subletting in the tenancy agreement the 1st defendant was entitled to sublet to the 2nd defendant Rassil Ltd. I am further of the opinion that Rassil Ltd. 's action in further subletting to Maria Ying after 18th December 1980 is not within the statutory prohibition created by Section 53(2)(e). The section refers only to "the tenant" and "tenancy". Throughout Part II a clear destinction is drawn between "tenant" "subtenant" "tenancy" and "subtenancy". Accordingly Rassil Ltd. was entitled to further sublet to the 3rd defendant. 37. I am conscious of the irony inherent in this situation, when the provisions of Section 50(6)(j) apparently devised for the protection of landlords, are used by a tenant against the interests of his landlord. 38. The plaintiffs action fails. 39. In view of my findings I do not need to consider the 1st defendant's counterclaim. 40. The 1st and 2nd defendants are entitled to any Court fees and any other disbursements properly incurred.
Representation: (1) Civil Appeal No. 152 of 1980 (1) 1961 AC P12. (2) 1897 AC 22. (3) 1921 2 KB 492. |