Chan Kwok Kwan v. Chan Cheong Wai t/a Chan Cheong Kee Store

DCCJ005598/1978

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

ACTION NO. 5598 OF 1978

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Coram: H. H. Judge Cruden in Court.

Date of Judgment: 24 October 1979

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JUDGMENT

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1. In these proceedings the plaintiff, pursuant to his re-amended statement of claim, prays for an order for possession of premises known as Shop B, No.65 Blue Pool Road, Ground Floor, Happy Valley, Hong Kong together with certain other relief.

2. The plaintiff and the defendant described as Chan Cheong Kee were parties to a tenancy agreement in Chinese for a term of 3 years commencing on the 1st day of December 1972 and "terminating at the end of November 1975." The monthly rent was $1,000 per month. On the 1st day of December 1975 the tenancy was, by endorsement in writing, extended for a further 3 years to the 30th day of November 1978 at an increased rent of $1,200 per month. The tenancy agreement included a provision whereby the defendant agreed at the expiration of the premises to surrender vacant possession of the premises. The renewal period has expired. The defendant's right to possession under the tenancy agreement has therefore expired by effluxion of time. He has not yielded up vacant possession so is therefore holding over.

3. The major dispute between the parties is whether Part II of the Landlord and Tenant (Consolidation) Ordinance, Cap.7 applies. On the pleadings, the plaintiff asserts in paragraph 5 of the Statement of Claim that the premises are used by the defendant as a grocery store all Part II therefore does not apply. The defendant in paragraph 5 of his defence, claims that almost one-half of the premises is used as domestic premises while the balance is used as combined shop and domestic premises and that Part II does apply; If Part II of the Ordinance does apply then the right to possession is subject to the restrictions imposed by Section 53 which deals with the termination of tenancies subject to Part II. The plaintiff has neither pleaded nor proven any of the grounds for possession under Section 53(2) of Part II. If he is to succeed it must be established that Part II does not apply.

4. Section 51 provides that a "domestic tenancy" means a tenancy of premises let as a dwelling. Section 51 further sets out provisions which apply in determining the nature of a tenancy and also sets out other matters which may be taken into account. While the tenancy agreement describes the premises as a "garage" it does nor expressly specify the purpose those premises are to be used for so s. 51 (2) (a) does not apply. For similar reasons paragraph (b) is also inapplicable. The nature of the tenancy therefore falls to be determined by "primary user" as provided by paragraph (c) which states:-

". . . where there exists insufficient evidence as to whether premises were let as dwelling or not let as a dwelling, the nature of the tenancy or sub-tenancy shall be determined by the primary user of the premises;"

5. Section 51(3) sets out the factors which may be taken into account in determining the actual use to which the premises are being put. In this regard I have taken into account that the head lease from the Crown to the plaintiff permits only private residential domestic use with the exception of certain car-ports. The Permit to Occupy a New Building, under Section 21 of the Building Ordinance, Cap.123, follows the provisions of the Crown lease, permitting flats for domestic use and car-ports as the only non-domestic use. I confirm that the Tenancy Agreement refers to the premises let as a "garage". Clause 3 contains certain prohibited uses but none of these includes a residential use. Clause 4 is a permissive clause relating to other uses. The plaintiff stated that he did not know that the defendant was going to live in the premises. The defendant states that the plaintiff knew the was going to use the garage as combined residential and grocery shop premises. I am satisfied that in these circumstances this is a case where the Court is obliged to decide the nature of the premises by reference to their primary user under paragraph (c).

6. Clearly one of the uses of the premises is non-domestic. The tenancy agreement itself expressly provides that the premises let are a garage. There is no express provision permitting them to be used for domestic purposes. The plaintiff also lives at No. 65 Blue Pool Road and passes the suit premises daily. He states that he let the garage to be used as a provisions store and upon entering into possession the defendant fitted the premises out as a provisions store and has throughout carried on business from the premises as the "Chan Cheong Kee Store." When the premises were let the occupant had the right to use a toilet nearby owned by the plaintiff in common with certain other persons. There was at the commencement of the tenancy no separate toilet for the suit premises. It was common ground that the defendant at some time thereafter had a separate toilet installed. There was also produced in evidence two photographs showing that the whole of the road frontage of the premises comprised a provisions store and that notices were displayed the exterior to that effect. Among the agreed bundle of documents was a copy of business registration certificate No. 106619 which showed that the defendant carried on the business of the Chan Cheong Kee Shop at the premises, as "grocery dealers".

7. On 22nd March 1979 the Commissioner of Rating and Valuation on the application of the plaintiff under Section 51(4) issued a Certificate of Primary User of the suit premises certifying that as at the 9th day of March 1979 the primary user of the suit premises was non-domestic. This Certificate was issued pursuant to Section 51(5) (a). Sub-section 6 thereof provides that such a certificate shall be prima facie evidence of the facts set out therein.

8. However, as there was no application to the Court to review that finding there has been no conclusive determination of that issue by a Court. It therefore remains open to the defendant in these proceedings to rebut that presumption, if he is able to do so, on the evidence.

9. Quite separately from any question of primary user it was also common ground that the Crown had claimed from the plaintiff temporary waiver fees of $26,000 per annum by reason of the use of the suit premises for non-domestic purposes in purported breach of prohibitions contained in the Crown Lease for the period to the 30th day of November 1978.

10. The defendant asserts that the plaintiff in letting the premises to the defendant well knew he was going to use them for both grocery shop and domestic purposes. Furthermore that the actual primary user has been domestic. The defendant produced a sketch plan of the premises which indicated that the premises were divided into various areas which fell under one of two descriptions. First, there was an area for accommodation which totalled 434.4 square feet. This area was alleged to be used exclusively for domestic purposes. The balance of 592.1 square feet included the front area of the premises containing 478.2 square feet. This was the shop portion of the premises but at night was used as a sleeping area for the two sons of the defendant; during the day a table therein was used by the family for eating their meals; after the shop was closed the same area was used for recreation by the children. However, even when the shop portion was closed to customers it continued to store the stock-in-trade and chattels of the grocery business. For 24 hours of each day it was used for non-domestic purposes. When during the day the family ate from the dining table this was merely an incidental use of what was clearly an area used principally for the grocery business. For some hours during the night it was also used for recreational and sleeping purposes. But these latter uses were in addition to and not instead of the non-domestic use. The other portion comprised 113.9 square feet which was described as a business store and passageway. The passageway was the only route between the kitchen and the accommodation areas. As to these two latter areas, the defendant stated that they were not exclusively business areas but used partly for business and partly for domestic purposes. The defendant submitted that when the element of domestic user of these areas, is added to the exclusively domestic areas, then the primary user of the whole of the suit premises is clearly domestic.

11. The plaintiff called an officer of the Commissioner of Rating and Valuation who produced the Inspection Report on which the Certificate of Primary User was based. This Report apportioned the use of the premises as 71% non-domestic and 29% domestic. However, the total area was only 834 square feet whereas the defendant's sketch plan shows a total of 1026.5 feet. Nor was there any detailed analysis of any area used for both purposes. Unfortunately, the officer who appeared and produced the Report was not the officer who inspected the premises or compiled the report. The witness had never entered the premises so his evidence was of limited value on this crucial issue.

12. In deciding the primary user of the premises there are many factors to be taken into account. While square footages are relevant they are not decisive. This is not an issue where a Court should be mesmerised by the arithmetic. It must look at the substance and at the realities. Here there is clearly a joint usage. The actual areas which are used for domestic user on the one hand and non-domestic use on the other hand are similar. As between these competing uses I am satisfied and take into account that to the defendant the non-domestic use is financially more important. He could clearly more easily obtain alternative domestic accommodation which would satisfy his requirements than he could obtain alternative shop premises for his grocery business. The defendant's letter to the Registrar-General in which he stated he first rented the premises for a shop and emphasized the financial suffering which would result if he had to move his grocery business from the premises, is direct evidence on this point. But financial considerations are not conclusive. They are merely one of the factors to be given due weight. The subjective view of the tenant as to the relative importance of the two uses is not conclusive but it is certainly a factor to be considered.

13. I also take into account that as well as operating the grocery shop from the front of the premises the defendant, his wife and 5 children, whose ages range from 4 years to 20 years, all reside at the same premises which constitute the family home. Against the background of all the evidence adduced, including the presumption in favour of the plaintiff under Section 51(6), I am of the opinion that the competing uses are each sufficiently powerful and proven, than it would be impractical and unrealistic to make any distinction between them. I am satisfied that on the balance of probabilities they are more or less equal. In coming to this conclusion I remind myself that while the initial onus was on the plaintiff, the effect of Section 51(6), a certificate in favour of the plaintiff having been adduced, is to transfer to the defendant the obligation to rebut the presumption of non-domestic user. The other evidence just rebuts that presumption.

14. Faced with this nicely balanced factual situation I would, in the absence of authority, have found it extremely difficult to decide the issue of primary user. However, the matter is not without authority. Although while such joint user must be very common in Hong Kong, Counsel were only able to refer me to one authority dealing with this precise issue which was the decision of Huggins D.J. , as he then was, in Chan Yuk Tong & Ors. v. Chu Sun Biu (1960) D.C.L.R. 43. Counsel for the plaintiff states that the observations on primary user were obiter and should be disregarded. Even if they were they are of considerable persuasive force particularly in the absence of other reported authority. Huggins D.J. on the question of primary user made these observations:

"The premises in question were not used wholly for human habitation and I must ask myself, What was the "primary" user? If I had found that Mr. Chu Fuk's family lived in the 2nd floor and that he slept in the staircase space merely in the role of caretaker I might have said that the space was used primarily for business purposes. But having found that his daughter was living with him I think it follows that there was a user for human habitation which was not subordinate to the user for business purposes. Even if it can be urged that the business and domestic users are equally balanced I think the proper view is that the domestic user is the primary user and that the business is in the nature of a "cottage industry".

15. As to the facts it may be noted that the premises which Huggins D.J. held to be domestic had neither toilet nor cooking facilities. While in the instant case the suit premises has both these facilities. On the other hand in the present case the grocery business carried on is much more than merely a cottage industry carried on incidentally in domestic premises. There are also other major differences between Chan Yuk Tong & Ors. v. Chu Sun Biu (supra) and this case. The definition of domestic premises there considered was differently worded to the definition in Part II of the present Ordinance. Huggins, D.J. was also concerned with a factual situation where the non-domestic user was, at most, equal to the domestic user. Here the non-domestic user is, at least, equal to the domestic user. The crucial and difficult question was whether on the facts it could be held that the domestic user was equal to the non-domestic user. Huggins D.J., was faced with the reverse factual situation. Looking at that question broadly I have found that the domestic and non-domestic uses are equal. In view of this finding I propose, as a matter of law, to adopt the principle enunciated by Huggins D.J. and rule that in such event the domestic user is to be regarded as the primary user.

16. The plaintiff also submitted that the premises were in any event excepted from Part II by the provisions of Section 50(6) (k) which provides, inter alia, that Part II does not apply to a tenancy where the tenant is a firm. The plaintiff rightly submitted that the tenancy agreement was in the name of "Chan Cheong Kee" as tenant which was not the name of the defendant Chan Cheong Wai. The plaintiff submitted this indicated the tenancy was not to the plaintiff personally but to his firm which was known as Chan Cheong Kee. The defendant's full name is Chan Cheong Wai. His firm name is Chan Cheong Kee Shop. He had used the shop name for trading purposes for many years prior to his occupancy of the suit premises when he had traded elsewhere. Because of these factors I am satisfied on the balance of probabilities that in his personal capacity the plaintiff was colloquially known as Chan Cheong Kee and was so named in the tenancy agreement. I am satisfied that the tenancy was to the defendant personally and not to his firm. I therefore reject the plaintiff's submission that the tenancy was to the defendant's business, namely the Chan Cheong Kee Store. In coming to this conclusion I accept the plaintiff's submission that it is well settled law that a firm may consist of a sole proprietor as well as a number of joint proprietors. The plaintiff's difficulty here is that the tenancy agreement was not to the defendant's firm but to the defendant personally.

17. In the third prayer for relief the plaintiff claims, in the alternative, damages pursuant to paragraphs 6 and 8 of the Statement of Claim or a declaration that the defendant is liable to indemnify the plaintiff in respect of all sums which may be demanded of the plaintiff by the Hong Kong Government and which the plaintiff shall pay in respect of the defendant's user of the premises after the 30th day of November, 1978. There was no evidence as to damages suffered and the plaintiff conceded that on the evidence it sought the alternative remedy of a declaration. This claim arose from the fact that the Crown apparently because aware of the fact that the suit premises were at least in part used for carrying on the defendant's grocery business which was in breach of the Crown lease to the plaintiff. In view of the restrictive covenants as to user in the Crown lease, the Crown had given notice to the plaintiff, as head lessee, that as a consequence of such breach its power to re-enter had arisen. However, the Crown was prepared temporarily to waive such breach subject to a waiver fee of $26,000 per annum being paid by the plaintiff. No doubt the reason why the plaintiff makes no claim for the period prior to the 30th day of November, 1978 was that occupation of the premises was then pursuant to the written tenancy agreement. The plaintiff throughout has maintained that he let the premises to the defendant for the grocery business. That assertion was an essential part of his claim that Part II does not apply. Paradoxically, it was the contractual use of the premises for that non-domestic purpose, that led to the Crown giving notice requiring the payment of waiver fees. On the 30th day of November, 1978, however, the tenancy agreement expired by effluxion of time. The defendant is at present holding over. The plaintiff's claim under this prayer is based on this changed basis of occupation. As to declarations I was referred by the defendant to the recent decision of Television Broadcasts Ltd. v. The Attorney-General (1976) H.K.L.R. 969 and reminded that a declaration is a discretionary remedy and should not generally be granted in respect of abstract questions. The plaintiff replied that even though no demand had yet been made by the Crown for the period beyond the 30th day of November, 1978, there was no question of the plaintiff's liability to the Crown. The old case of Bramley v. Chesterton (1857) 2 C.B. (N.S.) 592 was cited as authority for the proposition that a tenant holding over is liable to indemnify the landlord for sums necessarily paid by the landlord to settle a suit brought against the landlord by the prospective tenant who was prevented from going into possession due to the prior tenant's holding over. By analogy it was submitted that principle equally applied here and that the speculative elements that arose in Television Broadcasts v. the Attorney-General did not arise in this case. However, in Bramley v. Chesterton the landlord had already settled an actual claim by the prospective tenant before he commenced his indemnity action against the prior tenant who held over. Here not only has there been no settlement. There has not even been a demand. When I return to the prayer for relief I find that the declaration is sought in respect of a prospective liability which itself is subject to two contingencies. First it is subject to the Crown making demand for the period after 30th November, 1978. Secondly, it is subject to the plaintiff accepting such demand and making payment. Even in the latter event it may be that there would be arguments available to the defendant whether he was liable to indemnify the plaintiff based on the contractual and other relationship between himself and the plaintiff. Taking all these matters into account I consider that in the exercise of my undisputed discretion it would not be proper for me to make the declaration sought in the instant proceedings. In case the question of indemnity is subsequently the subject of proceedings it is equally undesirable for me in refusing to grant a declaration to go into the facts relating to the indemnity in any greater detail.

18. It follows that there will be judgment for the defendant whose costs shall be paid by the plaintiff on the upper scale to be taxed if not agreed.

19. DATED the 24th day of October 1979.

Representation:

Mr. A. Huggins instructed by C.P. Lin & Co. for plaintiff.

Mr. Y.C. Mok instructed by W.K. Lore & Co. for defendant.