Shung King Development Co Ltd and Others v. Optical Outlet (Hong Kong) Ltd
Read the full judgment text of DCCJ 1287/2005 on BabelCite. This District Court judgment.
1. The Plaintiffs own Units 2205-06, 22 nd Floor, City Landmark 1, No.68 Chung On Street, Tsuen Wan, New Territories (the “ Premises ”). The Defendant is described as the tenant of the Premises in a Chinese Confirmation of Tenancy (租約確定書) dated 24 th September 2003 (the “ Confirmation ”). The Confirmation was signed by Henderson Real Estate Agency Limited (“ Henderson ”) for the Plaintiffs as landlords and by the Defendant as tenant.
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DCCJ1287/2005 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 1287 OF 2005 ____________ BETWEEN
____________ Before: Her Honour District Judge Marlene Ng in Chambers (Open to Public) Date of Hearing: 19th October, 2005 Date of Handing Down Judgment: 24th November, 2005 _______________ J U D G M E N T _______________ Introduction 1.The Plaintiffs own Units 2205-06, 22nd Floor, City Landmark 1, No.68 Chung On Street, Tsuen Wan, New Territories (the “Premises”). The Defendant is described as the tenant of the Premises in a Chinese Confirmation of Tenancy (租約確定書) dated 24th September 2003 (the “Confirmation”). The Confirmation was signed by Henderson Real Estate Agency Limited (“Henderson”) for the Plaintiffs as landlords and by the Defendant as tenant. 2.A standard form sample pro forma tenancy agreement (the “Pro Forma Agreement”) was annexed to the Confirmation. The Defendant denied this in its pleadings, but it is plain it did sign on the Pro Forma Agreement to acknowledge receipt of such document. However, Mr Poon, solicitor for the Plaintiffs, confirmed that the Plaintiffs would not rely on the terms of the Pro Forma Agreement for the purpose of the summary judgment application. 3.The following are express terms of the Confirmation :
[Defendant簽署] [Henderson簽署]
[Defendant簽署] [Henderson簽署]
4.The Defendant paid the initial deposit of HK$38,066.00 (the “Initial Deposit”) to the Plaintiffs upon signing the Confirmation. 5.The Defendant did not pay rent since 1st January 2004 and did not pay rates, management fees and air-conditioning charges since 1st November 2003. 6.The Defendant wrote to Henderson on 23rd December 2003 (the “23/12/03 Letter”) inter alia as follows :
7.By a letter dated 1st March 2004 to the Defendant (the “1/3/04 Letter”), the Plaintiffs’ former solicitors claimed that despite repeated requests the Defendant still failed to attend their offices to sign the formal tenancy agreement (the “FTA”) and to make the payments specified in the Confirmation. The letter went on to say the Defendant “[had] also wrongfully refused to take over possession of the Premises on the commencement date of the tenancy, that is, 1st November 2003”. The Plaintiffs’ former solicitors urged the Defendant to make an appointment with them within the following 7 days to inter alia execute the FTA. 8.By a reply letter dated 16th March 2004 (the “16/3/04 Letter”), the Defendant’s solicitors referred to the telephone conversations between Henderson’s staff and the Defendant since October 2003 and to the Defendant’s 23/12/03 Letter, and said “[they were] instructed to inform [the Plaintiffs’ former solicitors] that [the Defendant decided] not to take the possession of [the Premises] and she [was] willing to dispose of [the Initial Deposit] to [the Plaintiffs]”. 9.On 6th May 2004, Henderson on behalf of the Plaintiffs served written notice of re-entry on the Defendant (the “6/5/04 Letter”) on the basis that the Defendant failed to take up the lease of the Premises in accordance with the terms of the Confirmation. 10.The Plaintiffs claimed they re-let the Premises on 9th December 2004 for a term of 2 years with a rent-free period from 9th December 2004 to 8th January 2005. Plaintiffs’claim 11.The Plaintiffs claimed that the Premises were ready for the Defendant to take possession on 1st November 2003, but notwithstanding repeated requests and demands the Defendant failed/refused to (a) sign the FTA, (b) provide personal guarantees signed by 2 of its majority shareholders, (c) take possession of the Premises and (d) pay the balance of the deposit as well as the arrears of rent, rates, management fees and air-conditioning charges. The Plaintiffs therefore accepted the Defendant’s repudiation of the tenancy by the 6/5/04 Letter and claimed for arrears of rent, rates, management fees and air-conditioning charges up to 5th May 2004 in the total sum of HK$146,450.95 (the “Arrears”) as well as loss and damages (the “Loss”) being lost rent, rates, management fees and air-conditioning charges from 7th May to 8th December 2004 in the total sum of HK$229,497.65. The Plaintiffs would give credit for the Initial Deposit. Mr Poon abandoned the claim for contractual interest on the Arrears, but maintained the Plaintiffs’ claim for interest on the Arrears pursuant to the District Court Ordinance Cap.336. Defendant’s pleaded defence and counterclaim 12.The Defendant claimed that the Confirmation was subject to the signing of the FTA and was not a valid tenancy agreement. After negotiations in October and November 2003, the parties failed to reach agreement on the signing of the FTA. The Plaintiff refused to deliver vacant possession of the Premises on 1st November 2003 or at all. In the circumstances, the Plaintiffs were not entitled to exercise the right of re-entry or to claim for the Arrears and Loss. The Defendant instructed its solicitors to send the 16/3/04 Letter to the Plaintiff’s former solicitors to offer terms for settling the dispute between the parties. The Defendant counterclaimed for the refund of the Initial Deposit. Summary judgment application 13.The Plaintiffs applied for summary judgment against the Defendant. Mr Poon confirmed that the Plaintiffs were seeking final judgment on the Arrears, but would only ask for interlocutory judgment on liability for the Loss to be assessed. The Plaintiffs abandoned their application to strike out the Defendant’s counterclaim. 14.The Plaintiffs relied on the affirmations of Chan Tin Lun (“Chan”, Henderson’s supervisor) and Fung Tat Lai Vincent (“Fung”, Henderson’s senior leasing officer). The Defendant filed the affirmations of Jenny C H Cheng (“Cheng”, the Defendant’s director) and Tam Yuen Yuk Nancy (“Tam”, Millennium Realty’s (“Millennium’s”) account manager) to oppose the summary judgment application. Application to amend the Defence and Counterclaim 15.On the day before the hearing (ie 18th October 2005), the Defendant issued a summons to amend the Defence and Counterclaim. It was agreed that if I decline to grant summary judgment, I should allow such amendment application and grant leave for the Plaintiffs to amend their Reply and Defence to Counterclaim. If, on the other hand, I should grant summary judgment, I should only allow those proposed amendments insofar as they relate to the issue of quantum. Law on summary judgment applications 16.There is no dispute as to the relevant principles for summary judgment applications. A plaintiff may invoke the procedure under Order 14 of the Rules of the District Court where there is no valid defence to his claim, or otherwise a triable issue. The rationale is set out in Hong Kong Civil Procedure 2004 Vol.1, para.14/4/1 at p.159 as follows :
17.In Ng Shou Chun v Hung Chun San [1994] 1 HKC 155, Godfrey J noted that it was not appropriate to embark on a mini-trial of the action on affidavit evidence. The court should ask itself the question whether what the defendant says is credible or believable. If so, he must have leave to defend; if not, the plaintiff is entitled to summary judgment. Defendant’s defence arguments 18.The Defendant raised the following defence arguments :
The Defendant also raised some miscellaneous arguments, which I will deal with below. User Defence 19.The actual usage of the Premises was for office purpose only. On/about 3rd July 2003, Millennium/Tam on behalf of the Defendant made an initial offer to Henderson to rent the Premises for a term of 2 years at a monthly rental of HK$19,033.00 (the “Defendant’s Offer”). The Defendant’s Offer provided as follows :
Consequently, Henderson (the Plaintiffs’ agent) sent the Confirmation to the Defendant through Millennium on/about 9th September 2003. (a) Defendant’s case 20.During June/July 2003, Millennium received enquiries about the Premises from the Defendant. Millennium’s Tam on behalf of the Defendant liaised with Henderson’s Fung on various occasions when she informed the Plaintiffs/Henderson that the Defendant intended to rent the Premises for optical retail purpose. She also personally visited the Premises and noted the adjacent unit was used for optical retail purpose. The Plaintiffs, Henderson (the Plaintiffs’ agent) and/or Millennium (the Defendant’s agent) had actual/constructive knowledge of the Defendant’s intended use of the Premises for retail purpose. 21.On/about 9th September 2003, Fung notified Tam to collect a sealed envelop addressed to the Defendant, which Tam passed to the Defendant. Tam was later given to understand it contained the Confirmation together with the Pro Forma Agreement. On/about 10th September 2003, the Defendant’s Cheng signed the Confirmation, which was returned to Henderson together with a cheque for the Initial Deposit. The Defendant’s intention to rent the Premises for retail/shop purpose was evidenced by clause (丙)(十四) of the Confirmation. The Defendant later discovered the permitted user stated in the Confirmation was for “office” purpose, so the Premises were not suitable for the Defendant’s intended retail use. It was therefore entitled to terminate the voidable Confirmation and not sign the FTA. (b) Plaintiffs’ case 22.In/about June to July 2003, Fung on behalf of the Plaintiffs negotiated with Millennium’s Tam over the leasing of the Premises to the Defendant. Millennium/Tam held valid estate agent licences and acted as estate agent for both parties. The Defendant’s Offer did not state that the Defendant intended to use the Premises for retail purpose. The Defendant/Tam should be aware that the user of the Premises was for office purpose only and Fung/the Plaintiffs did not represent to them the Premises were suitable for retail purpose. Even if the adjacent unit was used for optical retail purpose, it did not amount to any representation that the Premises could be used for such purpose. In/about September 2003, Fung on behalf of the Plaintiffs told Tam the Plaintiffs agreed to lease the Premises to the Defendant. He sent the Confirmation to Tam by fax and informed her to collect the original and forward it to the Defendant for signature. The Confirmation was largely written in Chinese, so the Defendant’s directors should have no difficulty in understanding its contents. (c) Analysis 23.Evolution of the User Defence In my view, the User Defence has been a moving feast in its evolution and is incredible. It was first raised in Cheng’s/Tam’s affirmations and was not mentioned in the Defendant’s 28/12/03 or 16/3/04 Letters or in the Defence and Counterclaim. Indeed, the Defendant only applied on the day before the hearing to amend its pleadings to plead the User Defence. But (as seen below) Cheng/Tam did not by their affirmations verify the material facts of the User Defence as pleaded in the draft amendments. 24.The Defendant’s affirmation evidence deposed that the Plaintiffs through Henderson had actual/constructive knowledge of the Defendant’s intention to rent the Premises for retail/shop purpose because Tam (a) told Fung of such purpose and (b) discovered that the unit adjacent to the Premises was used for optical retail purpose. However, the Defendant averred in the draft amended pleadings that Tam “specifically telephoned [Fung] of the Plaintiff’s agent to reconfirm whether or not the Premises was (sic) suitable for retail/shop purpose, and further to check with him whether the landlords shall permit to have a 2nd optical shop similar to the other optical shop on the same floor. [Fung] replied to [Tam] that there was no problem”. 25.No explanation was forthcoming as to the above disparity. Cheng and Tam both confirmed that Chan’s affirmation was explained to them and they knew their affirmations were for opposing the Plaintiffs’ summary judgment application. Although Tam described her communications with Fung in her affirmation, Tam did not depose to any telephone conversation whereby Fung expressly told her there was no problem in using the Premises as a second optical shop on the same floor. In my view, the Defendant’s shifting stance showed that its case on misrepresentation pursuant to Fung’s alleged representation and/or the User Defence is unbelievable. 26.Defendant’s Offer Ms Chow, solicitor for the Defendant, strongly relied on the Defendant’s Offer. But the intended usage of the Premises stated therein, namely, commercial purpose, was consistent with either retail/shop or office use. The Defendant did not explain why retail usage was not specifically stated in the Defendant’s Offer. In my view, the Plaintiffs/Henderson could not have surmised from the Defendant’s Offer that the Defendant particularly intended to use the Premises for retail/shop purpose. But even if the stated user in the Defendant’s Offer only meant retail/shop purpose (which I disagree), I note that a tenant’s covenant to use premises only for a stated purpose is merely a negative covenant not to use them otherwise than for the stated purpose (Sheenclass International Limited v The Attorney General HCMP3382/1994, Yam J (unreported, 28th February 1995)) and does not oblige him to use the premises at all. 27.Discovery of the “office” user Cheng/Tam claimed the Defendant “later” discovered the permitted user of the Premises was for office purpose. The Defendant did not state when “later” it made such discovery. I find such bare assertion unbelievable. Even on the Defendant’s case, Cheng/Tam claimed that after the Confirmation was signed, the parties negotiated on divers occasions in October and November 2003, but could not reach agreement on the commencement of the tenancy and the FTA. There is no evidence that the user of the Premises was discussed during such negotiations or that it led to the parties’ failure to reach agreement. Indeed, no complaint about the user of the Premises was raised even when the Defendant issued the 23/12/03 Letter or later still the 16/3/04 Letter. 28.Had the alleged discovery of the “office” use of the Premises been made before 16th March 2004, I find it incredible that the Defendant failed to complain about such misleading conduct by Henderson, particularly when the Defendant intended at that time to put an end to the Confirmation. It would have constituted strong leverage for the Defendant to terminate the Confirmation without surrendering the Initial Deposit to the Plaintiffs. If, however, the alleged discovery were made after 16th March 2004, the User Defence would have been immaterial to the Defendant’s decision not to take possession of the Premises. 29.The User Defence is therefore plainly unbelievable. Further, it is trite that mere assertion in an affidavit of a given situation does not ipso facto provide leave to defend since the defendant must satisfy the court he has a fair and reasonable probability of showing a real or bona fide defence, ie that his evidence is reasonably capable of belief (Hong Kong Civil Procedure 2004 Vol.1 para.14/4/9 at pp.162-163). 30.Henderson’s alleged actual/constructive knowledge of the retail user Even if the Plaintiffs/Henderson had actual/constructive knowledge of the Defendant’s intended optical retail user of the Premises (which I have found to be unbelievable), it is insufficient basis for suggesting that the Confirmation was voidable or that the Defendant was entitled to repudiate the Confirmation. 31.It is trite that there is no implied condition on the letting of premises that they are physically fit for the purpose for which they are let or they can lawfully be used for that purpose (Elder v Auerbach [1950] 1 KB 359 and Hill v Harris & anor [1965] 2 QB 601). 32.In the Hill case, the plaintiff enquired with a representative of the defendant’s estate agent whether he could use the premises as a tobacco and confectionery retail shop. The estate agent, who had no actual authority to give warranties, replied “that would be alright”. Subsequently the plaintiff’s solicitors wrote to the defendant’s solicitors stating inter alia they were instructed that the plaintiff’s intended use of the shop for a retail confectionery and tobacco business was a properly permitted user by both the head landlord and local planning authorities and they invited the defendant’s solicitors to reply. The defendant’s solicitors never replied to that part of the letter, but 2 months later submitted a draft lease with a clause permitting the plaintiff to use the premises as a retail tobacco and confectionery shop. The parties entered into the lease in identical terms, but it turned out that the head landlord in exercise of its powers under the head lease prohibited the sale of tobacco in the shop. 33.Diplock LJ said at p.616 as follows :
34.In the circumstances, there was no implied warranty by the Plaintiffs that the Defendant would be able to use the Premises for optical retail purpose. Further, the Defendant’s affirmation evidence did not depose to any express representation by Fung/Henderson to the Defendant/Tam/Millennium that the Premises were suitable for retail/shop use. The User Defence did not constitute sufficient ground to render the Confirmation voidable. Further, even if the Defendant/Tam/Millennium knew the unit adjacent to the Premises was used as an optical retail shop, it did not (on the above analysis) support the suggestion that the user of the Premises was for retail/shop purpose. 35.Equitable considerations Ms Chow cited the following passage in Lord Denning’s judgment in Solle v Butcher [1950] 1 KB 671, 692 referred to in China Resources Metals and Minerals Company Limited v Ananda Non-Ferrous Metals Limited HCMP520/1994 and HCCL7/1994, Kaplan J (unreported, 7th July 1994) :
However, the above passage only formed part of counsel’s submission in the China Resources Metals and Minerals Company Limited case and not the ratio of Kaplan J’s judgment. In fact the learned judge held that mutual mistake was not made out in that case and he did not consider it an appropriate case to exercise the court’s equitable jurisdiction. 36.As a matter of law, the English Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace) [2003] QB 679 has rejected the equitable doctrine expounded by Lord Denning in Solle v Butcher (see also Chitty on Contracts 29th ed, Vol.1 paras.5-043 – 5-049 at pp.393-398). Although neither party cited this case, it seemed that the point is now well settled. 37.Further, I do not see how the Defendant could seek to rely on the equitable doctrine (even if it were applicable) when it was in possession of the relevant fact, namely, that the user of the Premises was for office purpose. First, clause (乙)(e) of the Confirmation expressly stated that the user of the Premises was for office purpose. Secondly, the units for the Premises on the Floor Plan depicted in both English and Chinese they were for office use. Handwritten lines were drawn from such units to the margin where the Defendant placed its signature and company chop. Thirdly, it was stated inter alia in clause (丙)(九) of the Confirmation that the tenant would be required to pay a promotion levy if the Premises were a shop, but clause (丙)(三)(d) that provided for payment of the promotion levy was crossed out. This suggested that the Premises were not leased as a shop. Fourthly, contrary to the Defendant’s claim, clause (丙)(十四) of the Confirmation did not assist its case. The plain reading of such clause showed it was applicable only if the Premises were a shop. It did not say/imply that the Premises were suitable for retail/shop use. The Defendant’s directors should have no difficulty (and there was no suggestion they had any difficulty) in understanding the above provisions in the Confirmation and Floor Plan. 38.In any event, in the absence of any express or implied warranty as to the user of the Premises, it is not open for the Defendant to contend that it was inequitable for the Plaintiffs to let the Defendant remain in delusion that the Premises could be used for retail/shop purpose. 39.Misrepresentation and reliance But even if Henderson/Fung had represented to Tam/Millennium that there was no problem in using the Premises as a second optical shop (which I have found to be incredible), Mr Poon argued it was unbelievable the Defendant placed any reliance on such representation. He pointed out that the Defendant had the benefit/assistance of its qualified estate agent, Millennium/Tam, who was duty-bound to fully explain any provisional tenancy agreement to the Defendant before signature. 40.Mr Poon referred to Circular No.03-02 (CR) issued by the Estate Agents Authority in January 2003 which prescribed that an estate agent’s duties when assisting parties to enter into a provisional agreement included inter alia the following : “[some] owners have standard agreement …… In addition to fully explaining such standard agreement to the …… tenant, practitioners should check their pro-forma provisional agreement against the standard agreement for conflict or discrepancy in order to protect the interest of the …… tenant”. Deputy High Court Judge L Chan in The Wing On Properties and Securities Company Limited v Wave Front Enterprise (HK) Limited HCA380/2005 (unreported, 25th August 2005) held that an estate agent acting for the tenant would be in breach of his duty if he did not go through the terms of the landlord’s offer and explain the same to his client, but simply relied on a representation of the landlord’s agent and allowed the client to commit to the terms. Ms Chow did not challenge either the contents of the circular or the principles in the The Wing On Properties and Securities Company Limited case. 41.Even on the Defendant’s affirmation evidence, there was no doubt the Confirmation and Pro Forma Agreement were passed to the Defendant for signature on 9th September 2003 and they were returned to Henderson on the following day through Millennium/Tam. There was time opportunity for Millennium/Tam to explain the Confirmation and its annexures. Although Tam asserted that she “later” knew the sealed envelop contained the Confirmation and Pro Forma Agreement and Cheng claimed she “later” discovered the permitted user of the Premises was office use, no particulars were given as to the alleged discovery and, more importantly, there was no express denial that Millennium/Tam had discharged their duties as aforesaid. 42.I accept that although the facts of the The Wing On Properties and Securities Company Limited case went further than the present case in that there was evidence in that case that the agent actually read the offer letter, I bear in mind it was for the Defendant to raise a triable or arguable issue in this case. I have concluded that the alleged misrepresentation by Fung that there was no problem in using the Premises as a second optical shop was incredible. It is reinforced by the fact that it would have been unreasonable to assume Tam/Millennium relied on the alleged misrepresentation or simply relayed it to the Defendant when they as agent for the Defendant had a duty to explain the terms of the Confirmation and the Pro Forma Agreement. 43.Millennium’s/Tam’s role Mr Poon submitted that even if Millennium/Tam told the Defendant the Premises could have been used for optical retail purpose, it would at best be Millennium’s/Tam’s own representation and not that of the Plaintiffs/Henderson since Millennium/Tam had no actual or ostensible authority to do so on behalf of the Plaintiffs/Henderson. 44.On this point, Mr Poon relied on Jopard Holdings Limited v Ladefaith Limited & anor HCA3775/2001, Recorder B Yu, SC (unreported, 12th November 2004). The learned judge considered Cheng Kwok Fai v Mok Yiu Wah Peter [1990] 2 HKLR 440 and a number of subsequent cases. He concluded that it was a question of fact in each case whether the estate agent made any misrepresentation on behalf of the vendor/landlord. In the Jopard Holdings Limited case which involved a sale and purchase of property, it was held that the estate agency agreement between the vendor and the estate agent did not confer authority on the agent to furnish to the purchaser any information not supplied to the agent by the vendor. None could be implied since it was unnecessary for the agent to have such authority from the vendor in the performance of its duty to market the property and conduct negotiation. The vendor also had not clothed the agent with apparent or ostensible authority to make the representation relied on in that case. 45.In my view, given that the Defendant has not established any triable or arguable case on misrepresentation by the Plaintiffs or their agent as to the use of the Premises for retail/shop purpose, there is no need to consider whether Millennium/Tam had any authority to make the alleged misrepresentation. However, I note that in the Defendant’s affirmation evidence, Cheng/Tam did not refer to Millennium having authority from the Plaintiffs or Henderson to make such alleged misrepresentation. Rather they referred to Millennium as the Defendant’s agent and Henderson as the Plaintiffs’ agent. I note clause (七) of the annexure to the Confirmation provided that Millennium was the 中介人 of the subject transaction and that the Plaintiffs could pay commission to Millennium. The Defendant knew of this because as early as in July 2003, the Defendant’s Offer provided that Henderson/the landlord would pay an introduction fee to Millennium upon the signing of the FTA and that they were fully aware of and had no objection to Millennium charging an introduction fee from the Defendant. However, there was no clarification in the Defendant’s affirmation evidence as to the scope of the “introduction” by Millennium or of its authority arising from being a中介人. 46.Summary In the circumstances, I find the Defendant’s assertion of the User Defence incredible and unbelievable. Non-Tenancy Defence (a) Defendant’s case 47.The Defendant by the Defendant’s Offer suggested that the date of commencement of the tenancy of the Premises be 1st September 2003. Clause (丙)(一) of the Confirmation stated that the tenancy would commence on 1st November 2003, but it was only a tentative date. “[It] has been agreed between respective parties” that the date of commencement of the tenancy was to be agreed and subject to the signing of the FTA to be prepared by the Plaintiffs’ solicitors. Therefore, the Confirmation was not a valid or formal tenancy agreement. During negotiations on divers occasions in October and November 2003 between the Defendant (May Cheng) and its agent (Tam) on one hand and the Plaintiffs’ agent (Fung) on the other, the parties could not reach agreement on the formal date of commencement of the tenancy and/or FTA. Cheng said clause (丁)(四) of the Confirmation and the 23/12/03 Letter revealed that the parties had not reached agreement on the date of commencement and such date on the Pro Forma Agreement was left blank. (b) Plaintiffs’ case 48.The Confirmation clearly provided that the date of commencement of the tenancy was 1st November 2003, which was not an intended or tentative date subject to any further agreement. The Confirmation provided that by signing the Confirmation all terms stated therein were mutually agreed and confirmed between the parties and the Plaintiffs had authority to enforce its terms and conditions if the Defendant failed to sign the FTA before the date of commencement. (c) Analysis 49.Ms Chow submitted that although the Confirmation was legally binding on the parties, it was only an agreement to enter into the FTA at a later date or an agreement to agree and therefore it was not an enforceable tenancy. She drew support from the absence of words of present demise in the Confirmation such as “agree to let” and “agree to rent” and from the Plaintiff’s contractual right of election under clause (丁)(四) to back out of the Confirmation before signing the FTA without compensation or explanation to the Defendant. 50.Ms Chow relied on Godfrey J’s judgment in Yeung Siu Hong v Chan Siu Mee Sandie HCA3354/1991 (unreported, 17th December 1992) in respect of a preliminary agreement for the sale and purchase of a residential property. The learned judge held there was no concluded agreement because the parties only agreed to some terms of the transaction by the preliminary agreement (eg the price, the deposit, the further deposit, the completion and the payment of the broker’s commission by the vendor) but no more. There was no provision as to what would happen if a party did not sign the formal sale and purchase agreement. The preliminary agreement could not have been a note/memorandum of an already concluded agreement as there were no words reciting any prior agreement. It was not an immediately binding provisional agreement because there was no provision to such effect (eg the vendor agreeing to sell and the purchaser agreeing to purchase the property). The preliminary agreement was followed by correspondence between solicitors labelled “subject to contract” and which referred to the “intended purchaser”. Godfrey J held that the preliminary agreement was merely an agreement to agree coupled with an agreement to take certain steps and make certain payments preliminary to the constitution of an agreement for sale and purchase. 51.In my view, each case turns on its own facts and on the interpretation of the preliminary agreement in question. Indeed, Godfrey J in the Yeung Siu Hong case accepted that “when the terms of a contract are concluded, and nothing remains but to reduce it into a formal shape, the contract may be enforced”. Godfrey J came to such view in respect of the agreement in Man Lai Man v Lam Siu Yui Peter HCA7570/1991 (unreported, 11th June 1993). 52.The individuality of each case was more strongly emphasised by Sir Garfield Barwick in Daiman Development Sdn Bhd v Mathew Lui Chin Teck & anor [1981] 1 MLJ 56, 58, a case cited by Ms Chow, as follows :
53.In the Daiman Development Sdn Bhd case, the respondent paid a booking fee and signed a pro forma. He further agreed that on receiving notice he would sign the agreement for sale. He did not agree to the appellant’s subsequent increase in price and applied for specific performance. The Privy Council held that the pro forma was not contractually ineffective until some further agreement by the parties nor could it properly be said that the agreement contained in the pro forma was inchoate for want of consensual definition of the terms and conditions to be inserted in the contract of sale. The appellant was bound by the pro forma that created an obligation to purchase and sell the property. 54.In the end, Ms Chow accepted it was possible to have a binding contract notwithstanding the fact that the parties stipulated for the execution of a formal document incorporating the terms of the agreement. For illustration in this respect see Au Wing Cheung v Roseric Limited CACV25/1992 (unreported, 17th July 1992) in the context of the sale and purchase of property as well as Neweast Development Limited v SF International Secretaries Limited & anor DCCJ5539/2003, Deputy Judge W Lam (unreported, 26th September 2005) in the tenancy context (see also Branca v Cobarro [1947] KB 854). 55.Having considered the provisions of the Confirmation, I have no doubt that it constitutes a binding tenancy between the parties. The intention to create a lease does not necessarily turn on words of present demise since the language of the instrument as a whole must be construed to see if it is effectual to impart an immediate letting. Here the essential terms were agreed. The Confirmation identified (a) the Premises to be demised, (b) the parties as landlord and tenant, (c) the agreed rent, rates, management fee, air-conditioning charges, deposits and rent-free period and (d) the date of commencement and duration of the tenancy term. In addition, terms particular to the tenancy of the Premises were set out in the Confirmation and its annexure. There was clear offer and acceptance as evidenced by the signature of both parties on the Confirmation and its annexure. 56.I agree with Mr Poon that once the essential terms were agreed so that there was no lack of certainty and the court was satisfied that an agreement had been made at a particular point, the fact that the parties continued to negotiate thereafter was no bar to the existence of a binding agreement, even where no agreement was reached on the matters further negotiated (see World Food Fair Ltd & anor v Hong Kong Island Development Ltd [2005] HKLRD 665, 675). However, in the present case, the tenor of the Confirmation was that only the formality of signing the FTA was outstanding and there was little room for negotiation over the further terms of the FTA. The Confirmation expressly stated that the Plaintiffs’ standard form tenancy agreement (ie the FTA) was to be signed in duplicate at the office of the Plaintiff’s solicitors and it would include the terms of the Confirmation and such other terms of the FTA not set out in the Confirmation would be consistent with the standard form sample Pro Forma Agreement annexed to the Confirmation. In my view, it could not be said that the provisions to be inserted in the FTA were tentative. 57.The above express provision also explained why the date of commencement of the tenancy was not inserted in the Pro Forma Agreement annexed to the Confirmation. Such Pro Forma Agreement was merely a sample to identify what were the other terms and provisions that would be included in the FTA. But the Confirmation itself already provided that its terms (which necessarily included the date of commencement of 1st November 2003) would be included in the FTA. 58.Ms Chow laid strong emphasis on the uncertainty of the commencement date of the tenancy and/or FTA. I find no merit in the suggestion that such date was tentative or not yet determined. It was plainly stated in the Confirmation that the commencement date of the tenancy was 1st November 2003 and the tenancy term was for 2 years from 1st November 2003 to 31st October 2005. It also expressly provided that the FTA was to be signed on or before the date of commencement of the tenancy (起約日). There was nothing tentative about the date of 1st November 2003 and the above provisions were not qualified by any proviso for further negotiations or made subject to the execution and/or the date of the FTA. In my view, it flies in the face of the Confirmation to say the parties were still negotiating the commencement date of the tenancy after the Confirmation was signed. A lease, in proper form, takes effect from the date fixed for commencement, whether it be an immediate or future date, without the necessity of actual entry by the lessee (see Hill and Redman’s Law of Landlord and Tenant Vol.1 para.[906] at pp.A288-289). 59.Contrary to what Ms Chow suggested, in fact it favoured the construction of the Confirmation as a tenancy that clause (丁)(四) allowed the Plaintiffs to cancel and back out of the Confirmation at any time prior to execution of the FTA without giving any explanation or compensation to the Defendant. If the Confirmation did not create any binding tenancy and the parties were still in negotiation over any potential tenancy, there would have been no consequences if the parties did not sign the FTA when the negotiations failed. In such circumstances, clause (丁)(四) would have been redundant. In my view, clause (丁)(四) was only necessary if the Confirmation created a binding tenancy and the Plaintiffs wished to debar the Defendant from seeking specific performance or damages for breach of contract in case the Plaintiffs should decide to unilaterally withdraw from such tenancy before signing the FTA. 60.Clause (五) of the annexure to the Confirmation provided that at the time of signing the Confirmation, the Defendant had to immediately pay the stamp duty for the Confirmation and/or the FTA. In my view, if the parties had signed the FTA, it would have superseded the Confirmation, but the Confirmation would still be a binding tenancy agreement and liable to be stamped if the FTA was not so signed. If it were otherwise, there would have been no reason for clause (五) to refer to stamp duty for the Confirmation at all. I note that the Confirmation was in fact duly stamped. 61.More importantly, the Confirmation expressly provided that even if the Defendant failed inter alia to execute the FTA on or before 1st November 2003, the Plaintiffs had the right to (a) cancel the Confirmation and forfeit the Initial Deposit and other payments paid by the Defendant or (b) enforce their rights pursuant to the Confirmation and claim for loss and damages and/or specifically enforce the Defendant’s obligations under the Confirmation. Under limb (b), the FTA would not be signed, but the Plaintiffs could still specifically enforce the Defendant’s tenant obligations under the Confirmation, which plainly showed that both parties intended the Confirmation to be binding and to operate as a lease. Such provision together the comprehensive nature of the terms of the Confirmation distinguished this case from the Yeung Siu Hong case. 62.Further, the Defendant in its 23/12/03 Letter said “故希望[Henderson]能体察情況延遲租約到明年6月期間才開始。但因[Fung]話沒有可能，故希望[Henderson]能開方便之門，確認租約還未生效”. Such letter made several months after the signing of the Confirmation was clearly consistent with the Plaintiffs’ stance. If, as the Defendant claimed, there was no binding tenancy and the negotiations for execution of the FTA failed, there would have been no need for the Defendant to seek any indulgence from Henderson to defer the operation of the tenancy agreement to June 2004 or to request Henderson to agree that the tenancy agreement was not yet effective. 63.There was some tentative suggestion that the Confirmation was intended to be “subject to contract”. As in the Neweast Development Limited case, there was no express provision here for the “subject to contract” formula. In my view, everything essential about the tenancy was agreed and the intention to offer and accept was not in doubt. The language of the Confirmation discussed above negated any implicit application of the “subject to contract” formula. 64.Mr Poon submitted that the Defendant also exhibited clear intention to enter into a lease as a result of part performance of the tenancy, namely, payment of the Initial Deposit under the Confirmation. He relied on the World Food Fair Ltd case where the parties negotiated for the lease of certain premises for use as a food court. The tenant paid a deposit of HK$200,000.00. The landlord gave the tenant access to the premises and the tenant commissioned interior decorators to design the food court. The subsequent letter of intent prepared by the landlord and the draft tenancy agreement did not mention the user of the premises as a food court. Later the landlord refused such user and demanded the tenant to vacate the premises. 65.In my view, the degree of part performance in the World Food Fair Ltd case was more extensive than the present situation. The tenant in that case not only had access to the premises, it also incurred substantial expenses in relation to the tenancy. Ma CJHC regarded the payment of the deposit to be “of great significance” and accepted that such payment was required by the tenant to commit the landlord to a tenancy of the premises. Here, I accept that the payment of the Initial Deposit itself would not necessarily be evidence of a tenancy agreement, but it would reinforce the Plaintiffs’ case that a tenancy had been reached between the parties (see Cheung JA’s judgment at p.694). 66.In my view, the totality of the circumstances deposed in the affirmation evidence revealed that the parties were of one mind as to the essential terms of the agreement (see Confirmation), the special terms particular to this bargain (see the Confirmation and its annexure) and the terms to be inserted into the FTA (see the Confirmation, its annexure and the standard form sample Pro Forma Agreement). Even though there might be some further formalities, the Confirmation was not a primitive preliminary document but a binding tenancy reached after negotiations between both parties’ agents. The Non-Tenancy Defence does not raise any triable or arguable issue. Possession Defence (a) Defendant’s case 67.The Plaintiffs refused to and did not deliver the keys and vacant possession of the Premises to the Defendant or its agent. No notice was sent to the Defendant or its agent for delivery of vacant possession. Cheng denied that the Plaintiffs could have exercised any power of re-entry. Further, the Plaintiffs or their agent did not notify the Defendant/Tam to receive lighting panels, ceiling boards and new carpets for the Premises. There was no evidence to suggest that the Plaintiffs complied with clause (六) of the annexure to the Confirmation on/before 1st November 2003. (b) Plaintiffs’ case 68.The Plaintiffs agreed to provide certain number of lighting panels, ceiling boards and carpets to the Defendant to renovate the Premises. As was the Plaintiffs’ usual practice, these items were placed inside the Premises before the commencement date. In/about October 2003, Fung/Henderson through their solicitors informed the Defendant that the Premises were ready for taking possession and requested the Defendant to sign the FTA at the office of their solicitors. Despite demands/requests, the Defendant failed/refused to sign the FTA and/or collect the keys of the Premises. (c) Analysis 69.The Possession Defence was a mere bare assertion. Both parties knew from the plain wording of the Confirmation that the tenancy was to commence on 1st November 2003 and that the FTA and other formalities should be signed or completed on or before that date. The Plaintiffs’ claim that in October 2003 Henderson’s solicitors advised that the Premises were ready for the Defendant to take possession and requested the Defendant to sign the FTA was consistent with the Defendant’s own record in its 23/12/03 Letter. The 23/12/03 Letter went on to acknowledge that the Defendant did not sign the FTA due to the unavailability of its directors and that Henderson’s Fung and the solicitors chased up the Defendant to attend the solicitors’ office for execution of the FTA. It would have been incredible for Henderson and its solicitors to chase the Defendant for signing the FTA if the Plaintiffs did not intend to let the Defendant have access to the Premises. 70.In the 1/3/04 Letter, the Plaintiffs’ former solicitors claimed that the Defendant had wrongfully refused to take possession of the Premises, which again was entirely consistent with the Plaintiffs’ stance. Strangely the Defendant’s solicitors in their reply to such letter (ie the 16/3/04 Letter) never attempted to deny such assertion and the Defendant did not explain why in its affirmation evidence. Rather, it was stated in the 16/3/04 Letter written by the Defendant’s solicitors that it was the Defendant that decided not to take possession of the Premises. This was inconsistent with the Defendant’s claim that the fault lied with the Plaintiffs or their agent in failing to deliver vacant possession or to notify the Defendant to collect the keys of the Premises. 71.The Defendant also did not explain why, if the Plaintiffs were at fault in failing to deliver vacant possession of the Premises and/or to notify the Defendant to collect the keys of the Premises, it offered to surrender the Initial Deposit to the Plaintiffs in order to achieve full and final settlement and even went further to request the Plaintiffs not to “追究[the Defendant]任何法律責任”. In my view, the tenor of the correspondence between the parties and their conduct showed that the Possession Defence is incredible and unbelievable. 72.In respect of the lighting panels, ceiling boards and new carpets for the Premises, it is plainly logical and sensible for them to be left at the Premises since they would be installed within the Premises when the Defendant took possession. The Plaintiffs’ obligation under clause (六) of the annexure to the Confirmation was to supply these items. There was no provision requiring the Plaintiffs to deliver these items to the Defendant and no requirement that the Defendant be notified that these items were available at the Premises. There was also no express deadline for the supply of these items. Further, the Defendant did not complain about the lack of notification in respect of these items in any subsequent correspondence between the parties or even in its pleadings (or even in its draft amended pleadings). The delay in appearance of such argument until the Defendant’s affirmation evidence in May 2005 renders such argument quite unbelievable. Estoppel Defence (a) Defendant’s case 73.In/about December 2003, Cheng had telephone conversations with Henderson’s Fung to try to resolve the matter. Cheng offered to surrender the Initial Deposit to the Plaintiffs in full and final settlement if the Plaintiffs or their agent would waive any claim against the Defendant to which offer Fung agreed. But notwithstanding such agreement, the Plaintiffs’ former solicitors issued the 1/3/04 Letter. The Defendant’s solicitors replied by the 16/3/04 Letter to reiterate the terms of the agreement. The Plaintiffs were therefore estopped from making the present claim and were not entitled to exercise any right of re-entry. (b) Plaintiffs’ case 74.In/about December 2003, the Defendant’s Cheng in a telephone conversation with Fung requested to defer the date of commencement of the tenancy agreement to June 2004 in return for the surrender of the Initial Deposit to the Plaintiffs. Fung refused because it was not acceptable to the Plaintiffs. The Defendant did not tell Fung it would not sign the FTA and/or it intended to terminate the tenancy. On 23rd December 2003, Henderson received the 23/12/03 Letter from the Plaintiffs which recorded the above offer by the Defendant and the telephone conversation between Cheng and Fung. By the 16/3/04 Letter, the Defendant through its solicitors formally notified the Plaintiffs it decided not to take possession of the Premises. The Defendant intended to terminate the tenancy and the Plaintiffs accepted the Defendant’s repudiation by the 6/5/04 Letter. (c) Analysis 75.I find the Estoppel Defence incredible since it was contradicted by the plain wording of the contemporaneous 23/12/03 and 16/4/03 Letters by the Defendant and its solicitors. 76.Ms Chow agreed that the 23/12/03 Letter indicated that Henderson’s Fung did not agree with Cheng’s proposal to defer the date of commencement of the tenancy agreement, but she argued that such refusal did not mean Henderson disagreed with the Defendant’s offer to compromise by surrendering the Initial Deposit. Such submission falls short of the suggestion that the parties (Fung/Cheng) have reached an oral compromise agreement. In my view, had the parties reached such oral agreement during a telephone conversation in December 2003 as alleged by Cheng, the Defendant would not have failed to expressly refer to such agreement in the 23/12/03 Letter. Yet, at best the wording of the 23/12/03 Letter only amounted to a request by the Defendant to the Plaintiffs to accept the surrender of the Initial Deposit in return for not making any claim against the Defendant. I do not agree with Ms Chow that the 23/12/03 Letter recorded a compromise agreement between the parties. 77.In my view, the use of the characters “希望” in the phrase “故希望[Henderson]能……延遲租約到明年6月期間才開始” and the use the characters “希望” and “能開方便之門” in the phrase “故希望[Henderson]能開方便之門” in the 23/12/03 Letter in relation to the Defendant’s request to defer the date of commencement of the tenancy agreement to June 2004 as well as the further use of the characters “希望”, “方便” and “幫忙” in the phrase“希望[Henderson]多多方便及幫忙”in relation to the compromise proposal when read in light of the whole instrument plainly confirmed there was no agreement as yet between the parties. 78.It is also interesting to note that in the Defence and Counterclaim filed on 18th May 2005, there was no plea of the alleged oral compromise agreement in December 2003 or at all. In fact, the Defendant averred that even in March 2004 it instructed its solicitors to write the 16/3/04 Letter “offering terms for settlement of the dispute between the parties”. The alleged compromise agreement only made its first appearance in Cheng’s affirmation evidence. 79.Ms Chow argued that if the 23/12/03 Letter did not reflect an agreed compromise, the Plaintiffs or their agent would have raised an objection in the 2 odd months prior to the 1/3/04 Letter, but they did not do so. I see no necessity for the Plaintiffs or Henderson to raise any objection since a request unless accepted is a thing writ in water and in this case ineffective to terminate the tenancy in the Confirmation. 80.The above view sensibly explained the complaints by the Plaintiff’s former solicitors in the 1/3/04 Letter that the Defendant failed to sign the FTA or make payments as agreed under the Confirmation and that the Defendant wrongfully refused to take possession of the Premises. Such complaints were inconsistent with the compromise agreement as alleged by the Defendant. More importantly, the Defendant’s solicitors did not even respond to such complaints in its reply, namely, the 16/3/04 Letter. In my view, had there been a compromise agreement as alleged so that the aforesaid complaints were unjustified, the Defendant through its solicitors would not have hesitated to refute such unwarranted complaints. Strangely, not only did the Defendant’s solicitors did not do so, they stated in the 16/3/04 Letter that the Defendant decided not to take possession of the Premises and she was willing to “dispose of” the Initial Deposit to the Plaintiffs. In light of the unilateral nature of the wording of the 16/3/04 Letter, I cannot accept Ms Chow’s interpretation that it was merely a reiteration of the alleged compromise agreement. 81.I draw no assistance from the case of Tse Pok Lok & anor v Yuen Siu Hong DCCJ4830/2003, Deputy District Judge W K Kwok (unreported, 18th August 2005) which turned on its own facts. In my view, the Estoppel Defence is incredible. Air-conditioning charges 82.The Defendant claimed that installation of split type air-conditioning units and other modifications were required to operate the air-conditioning system. It further claimed that the Plaintiffs’ agent arranged for a contractor to provide a quotation for such works, but since the Plaintiffs failed to give notice to the Defendant of any intended delivery of vacant possession of the Premises, the Defendant was unable to proceed with the works and could not use the air-conditioning, so the Plaintiffs were not entitled to claim for air-conditioning charges. 83.In fact the air-conditioning charges were in relation to central air-conditioning and not the split-type air-conditioning units. Clause (二)(ii) of the annexure to the Confirmation provided for the supply of central air-conditioning to the Premises and clause (八) allowed the Defendant to supplement the central air-conditioning by operating the split-type air-conditioning units before and after normal office hours. It was plain that the Defendant’s agreement to pay air-conditioning charges pursuant to clause (丙)(三)(c) of the Confirmation was in respect of the central air-conditioning. Further, since there is no merit to the argument that the Plaintiffs failed to give notice of delivery of vacant possession of the Premises (see analysis above), the Defendant’s assertions in respect of the air-conditioning charges cannot amount to any arguable or triable defence. Some other reason for trial 84.In my view, there is no triable or arguable defence that required discovery or cross-examination of witnesses or which ought to be left for trial. I refer to the wise words of Megarry V-C in Lady Anne Tennant v Associated Newspapers Group Ltd [1979] FSR 298 as cited in Hong Kong Civil Procedure 2004 (supra) para.14/4/3 at p.160 : “A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to a sufficient reason for refusing to enter judgment for the plaintiff. You do not get leave to defend by putting forward a case that is all surmise and Micawberism.” Conclusion 85.In the circumstances, I grant in favour of the Plaintiffs against the Defendant (a) final judgment for the sum of HK$108,384.95 (ie the Arrears less the Initial Deposit) and interest thereon at the rate of 9.234% pa from the date of the writ of summons to the date of judgment and thereafter at judgment rate until payment and (b) interlocutory judgment for loss and damages to be assessed. There is no reason why costs should not follow event and I award costs of the summary judgment application (including all costs reserved, if any) to the Plaintiffs against the Defendant to be taxed if not agreed. 86.In respect of the application to amend the Defence and Counterclaim, I allow the proposed amendments in the manner as shown in red in paragraphs 15, 17 and 20 of the draft Amended Defence and Counterclaim annexed to the Defendant’s summons dated 18th October 2005 and grant leave to the Defendant to file and serve the Amended Defence and Counterclaim within 7 days from the date of this judgment. The Plaintiffs shall have leave to file and serve an Amended Reply and Defence to Counterclaim, if so desired, within 14 days thereafter. Since the parties agreed that costs of such application should be awarded to the Plaintiffs, I order that the Defendant do pay the Plaintiffs costs of and occasioned by its summons dated 18th October 2005 to be taxed if not agreed.
Mr Y M Poon of Messrs Chu & Lau for the Plaintiff. Ms Monita S K Chow of Messrs K Y Lo & Co for the Defendant. |