Loke Choong Wing v. Kwo Heung Lum and Another

HCA000087/1970

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 87 OF 1970

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Coram: Pickering J.

Date of Judgment: 27th November, 1970.

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JUDGMENT

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1. By a lease dated 31st July, 1968, the plaintiff demised to the first defendant the ground floor and cockloft of No. 12 Hennessy Road, Victoria, Hong Kong, for the term of five years and four months from the 1st day of May, 1968, at the monthly rental of $900 payable in advance on the first day of each month. The letting was expressed to be for business purposes though in fact the first defendant and his family had for many years before the date of the lease lived in the cockloft of the premises.

2. The lease contained a covenant in the usual form whereby the first defendant undertook not to transfer, assign or sublet the demised premises or any part or parts thereof or to part with the possession of the same. A further clause entitled the plaintiff to re-enter in the event of non-observance or nonperformance by the lessee of any of the covenants.

3. It is the contention of the plaintiff that the first defendant has transferred, assigned or sublet the premises or part thereof or otherwise parted with the possession of the same to the second defendant in breach of the first defendant's covenant and the plaintiff now claims possession together with arrears of rent or alternatively mesne profits at $900 a month until the date of the writ and thereafter mesne profits at the same rate until possession is delivered, he having refused to accept rent from the 1st Defendant since 1st September 1969.

4. The amended statement of defence of the first defendant contained an allegation that the proceedings were bad in law and could not be maintained in that the plaintiff was not a person alive at the commencement of the proceedings or, alternatively, had died since such commencement. At the trial this allegation was not pressed once the plaintiff, who lives mostly in Malaya and only from time to time in Hong Kong, appeared in the witness box.

5. The first defendant testified that he had rented the premises in question from a Mr. Chan Sheung-man in 1958 and that in 1963 a certain Chinese male, LOKE Chung-shu, came to see the first defendant saying that he was both a relation and the lawful attorney of the landlord and offering to lease the premises to the first defendant for a term of five years at $600 a month in consideration of some $42,000 tea money. It is common ground that this premium was paid and such a lease entered into. According to the first defendant's amended defence and to his evidence, during the year 1965 the first defendant was in partnership with a friend in the premises when Mr. LOKE Chung-shu accused him of subletting the premises and said that he would institute proceedings against the first defendant for breach of covenant unless the latter gave him $5,000 as tea money. The first defendant states, though LOKE Chung-shu who is a medical practitioner in the Colony denies, that this payment was made. Similarly, whilst it is common ground that in November 1969 Dr. Loke complained to the first defendant that the signboard outside the premises had been changed and then bore a name different from that of the first defendant's firm, Dr. Loke denies that on that occasion he demanded a further premium in the sum of $10,000. The first defendant says that such a demand was made and that his refusal to pay the $10,000 is the real reason for the commencement of this action.

6. The first defendant claims that although subsequently to the commencement of the current lease, he entered into what is termed a "Co-operation Agreement" with the second defendant in regard to the use of the premises, nothing that he has done amounts to a breach of the covenant not to transfer, assign, sublet or part with the possession of the premises or any part thereof.

7. The second defendant says that he knows nothing about the lease entered into between the plaintiff and the first defendant in July, 1968; he affirms the existence of the Co-operation Agreement but also denies that the premises or any part thereof have been transferred, assigned or sublet to him or that the first defendant has parted with the possession thereof to him. The further contention in his statement of defence that the Court has no jurisdiction because the premises are old premises in respect of which no occupation permit has been issued since the re-occupation of the Colony in 1945, cannot be sustained in the light of the admitted letting by the plaintiff to the first defendant for business purposes for a period of more than five years since premises so let fall, by virtue of section 3(1)(e) of the Landlord and Tenant Ordinance Cap. 255, outside the provisions of that Ordinance.

8. At the trial numerous cases were cited by counsel in which the decision turned upon the question whether the arrangement there under consideration amounted to a lease or a mere license. I do not propose to analyse the cases because before me counsel were not arguing their effect but were, on the contrary, ad idem as to the principles established by the cases. Thus the primary question for my decision is whether or not the second defendant has been let into exclusive possession of the premises or part thereof [see Peebles v. Crossthwaite⁽¹⁾, Stening v. Abrahams⁽²⁾, and Chaplin v. Smith⁽³⁾] and in determining that issue the court does not allow itself to be hypnotised by whatever label the parties have chosen to put upon the document which falls for construction. [See Facchini v. Bryson⁽⁴⁾, Addiscombe Garden Estates v. Crabbe⁽⁵⁾]. What I have to determine is whether upon the true construction of the Co-operation Agreement and in the light of the behaviour of both defendants as that emerges from the evidence, the first defendant has parted with the exclusive possession of any part of the premises to the second.

9. The Co-operation Agreement was executed in original and counter-part in the Chinese language and was in the following terms:-

Entered into by affixing signatures and chops (of both parties).

Middleman: (Sd) Hui Tze (illegible)"

10. That is the whole of the document. The copy retained by the first defendant bore, when produced in court, an alteration in the first line of Clause (1) where the word "transfer" had been altered to "loan". No such alteration appears in the copy which the second defendant retained and both defendants disclaimed all knowledge of the alteration the first adding that neither he nor his wife can write Chinese. Neither defendant seeks specifically to rely upon the alteration upon which nothing seems to turn.

11. At a subsequent date a written amendment was appended to the Co-operation Agreement. The only provisions of that amendment which are relevant for present purposes are that the clause in the Co-operation Agreement giving the second defendant the right to set up a workshop in the yard at the back of the shop was cancelled and that it was provided that the kitchen and latrine in the yard should be for common use.

12. Pursuant to the Co-operation Agreement the second defendant now operates a tailoring business in the rear half of the shop whilst the first defendant continues to operate a similar business in the front half. The first defendant and his family have the exclusive use of the cockloft whilst the yard with its kitchen and latrine is for common use. The issue narrows down to whether or not the second defendant has the exclusive use of the rear half of the shop.

13. Dealing with the Co-operation Agreement, Mr. Swaine for the plaintiff, argued that the reference in Clause (1) to a "transfer" of half of the shop premises amounted to a parting with the exclusive possession of the rear half. The conclusion was fortified by Clause (2) which provided that either party might use the vacant space in the shop when discussing business with customers. In evidence "the vacant space" had been said to be that part of each party's portion of the shop premises which is not covered by counters or show cases. Clause (2), counsel urged, operated as a licence by the first defendant to the second of the vacant space in the first defendant's half of the shop and conversely as a licence by the second defendant to the first of the vacant space in the second defendant's half; the clause was superfluous and had no meaning unless the second defendant had the exclusive possession of the rear half of the shop. Moreover, the amending document was of importance in that in it the two defendants had been at pains to spell out a right in common to use the toilet and the kitchen and the proposition that the whole shop premises were also in common use found no support in the documents where there was a specific mention of a transfer of one-half of the shop to the second defendant. Again, the second defendant had spoken in evidence of the first defendant "giving" him the rear half of the shop and in an affidavit had referred to himself as a "tenant".

14. To these arguments Mr. Mills-Owens for the first defendant replied that to regard Clause (2) of the Co-operation Agreement as carving a licence out of grant contained in Clause (1) was artificial and that the natural construction of the document was that whereas Clause (1) certainly contained a grant, Clause (2) made it clear that the grant did not go so far as to give any exclusive rights to the second defendant over either half of the shop.

15. I am disposed to agree that this is a less artificial construction of the Co-operation Agreement than that striven for by Mr. Swaine for the plaintiff and it is the construction which I would adopt. Moreover the phrase used in Clause (1) in regard to one half of the shop premises in "to transfer........... for use," a phrase which would seem to imply something less categorical than might have been understood by the employment of the word "transfer" without any qualification of the purpose of the transfer. Not only however is the phraseology of the document unfelicitous but the agreement is imprecise as to the area to which the alleged transfer refers. The half of the shop contemplated is undefined in the agreement. Is it intended to be the rear half of the shop, the front half, the half to the left of a line drawn down the centre of the shop at right angles to the shop-front or the half to the right of such a line? As the document stands it is incapable of constituting a transfer because the area purported to be transferred is unspecified. The document on its face does not constitute a transfer or a parting with possession and merely by construing it the plaintiff cannot point to any particular area which has been dealt with in breach of covenant. Indeed, in my view the second defendant could not enforce the agreement against the first except as a licence to share the whole premises, it being too vague as to the area intended to be dealt with. The very absence of any definition of the half of the premises to be used by each defendant suggests to me an intention that the premises should be used in common, though, subsequently, as a matter of convenience, one placed his showcases and other equipment at the rear of the shop and the other at the front.

16. The Co-operation Agreement being of no assistance to the plaintiff, it is necessary to look at the actions of the two defendants to determine whether what they have done amounts in fact to a conferment upon the second defendant of exclusive possession of any part of the premises.

17. The first defendant, who is both elderly and infirm, testified that in December 1968 he had an attack of hemiplegia which caused him to be in hospital for a considerable period. It was the effect upon his business of his prolonged illness and subsequent physical condition that prompted him to approach the second defendant with a view to entering into the Co-operation Agreement. That is the background to the agreement between the two defendants, and it is, I think, important to an appreciation of the true relationship between them to keep that background in mind. Theirs was no business relationship entered into between businessmen for solely commercial reasons. True, each derived some commercial benefit from their arrangement. The first defendant, too ill and infirm to carry on his own business at anything like its previous volume and tempo, benefits to the extent of 5% of the profits of the second defendant derived from that portion of the second defendant's business carried on in the premises the subject of litigation. The second defendant, whose original business was and is in other second floor premises, has the benefit of additional and ground floor premises in the first defendant's shop. Yet the origin of this arrangement was not simply a desire for mutual greater profit. The arrangement was born in a cry from the heart for assistance coming from a man too infirm to operate his business as vigorously as formerly and addressed to a younger more active man in the same trade. The two were friends and the second defendant testified that he wanted to help the older man out and to that purpose, to attract business for the benefit of them both, he spent some $6,000 in decorations and re-wiring.

18. That the term "friends" was no mere formalism was most evident in Court. I have commented that the first defendant is very infirm and the solicitude with which the second defendant assisted his slow, and possibly painful progress, from his seat to the witness-box and back again was most notable. This was no task undertaken from mere physical necessity nor was it any charade as witnessed by the fact that on one occasion during a 15-minute adjournment I observed, though my advent was unexpected, the same genuine concern on the part of the second defendant as he assisted the first towards the exit door of the Court. I am in no doubt that the two are friends in the true sense of the word and whilst that does not render it impossible for the first defendant to have parted with possession of a portion of the premises to the second, it goes some way towards pinpointing the true intent and effect of their co-operation agreement.

19. Under cross-examination the first defendant made several statements which were damaging to his case. Thus he said that the second defendant had virtually taken over the shop premises and had the use of the whole of the ground floor whilst he himself had that of the cockloft, the yard being used in common. At the same time, however he derogated from this admission with the assertion that he continued to carry on his own business in the shop premises - a business entirely distinct from that of the second defendant - and that the outer half of the shop was his. Again he agreed that without the provison for the mutual use of vacant space in each other's portion of the shop either he or the second defendant could say to the other. "You keep out of my half" but in cross-examination he said that he could go into any part of the premises he wished. Lastly he agreed, in response to a question put and repeated by Mr. Swaine with characteristically patient and fair explicitness that the second defendant was his "tenant" of part of the premises. This was an explicit and damaging statement but unquestionably the comprehension of an elderly infirm party of the precise description to be applied to his legal relationship with the second defendant must be tested against the facts. The Court must no more allow itself to be bound by the label pronounced in the witness-box than by that adopted by the parties in a written agreement.

20. The second defendant denied that he was a tenant of the first whilst admitting that he now operates a tailoring business in the rear half of the premises; that half had been "given" to him in the sense that he could place his equipment in it but the first defendant was also at liberty to place his own equipment in the rear portion of the shop provided there was space to do so. Each party was at liberty to receive his customers in the portion of the shop primarily occupied by the other party the two halves being for common use; and even in the absence of clause (2) of the Co-operation Agreement it would not have been open to him, the second defendant, to say to the first, "you keep out of my half" because the premises belong to the first defendant.

21. There was no evidence from the plaintiff or his sole witness, Dr. Loke, as to the precise manner of usage of the premises as between the two defendants. Photographs of the shop-front were put in but they go no further than to establish that the business-name of each of the defendants appears outside the premises. The issue as to whether there has been a parting with exclusive possession of a portion of the premises by the first defendant, falls therefore to be determined upon the construction of the Co-operation Agreement and upon the testimony of the two defendants. I have already recorded my conclusion that the Co-operation Agreement is of no assistance to the plaintiff and upon the evidence of the two defendants I have no hesitation in finding as a fact that there has been no parting with exclusive possession of any part of the premises on the part of the first defendant.

22. It follows that the plaintiff's claim to possession must fail and is dismissed. He is however entitled to arrears of rent at the rate of $900 p.m. from 1st September 1969 to date and there will be judgment for the plaintiff on his pecuniary claim. The plaintiff's primary claim having failed however, the costs of the proceedings must be borne by him. The first defendant's costs will be taxed under the Legal Aid Regulations.

Representation:

Judgment read in Court.

Swaine (T.S. Tong & Co.) for Plaintiff.

Mills-Owens (H.A. Hoosenally & Co.) for 1st Defendant.

2nd Defendant in person.

(1) 13 T.L.R. 198

(2) (1931) 1 Ch. 470

(3) (1926) 1 K.B. 198

(4) (1952) 1 L.T.R. 1386

(5) (1957) 3 A.E.R. 563