Tang Wah Leung t/a Wah Hing Plastic Factory v. Chan Mei Lin

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Coram: Huggins, McMullin & Pickering, JJ.

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JUDGMENT

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Huggins, J.:

1.  This was a cross-appeal by the Defendant in the action against the dismissal of her counter-claim. The Plaintiff’s appeal has been dismissed for want of prosecution. The proceedings arose out of a written agreement for a tenancy of two structures in the New Territories, which the Defendant let to the Plaintiff for a term of eighty months from 15th May 1969 to 14th January 1976. For reasons to which I shall return the structures were demolished by officers from the District Office of the New Territories Administration and subsequently the Crown re-entered the land upon which the structures stood. The Plaintiff complained that this action by the Government and the loss which he sustained therefrom stemmed from the fault of the Defendant while the Defendant complained that she sustained loss from the fault of the Plaintiff. They each made claims for compensation for the loss allegedly sustained.

2.  The case for the Defendant was that the Government’s action was a result of a breach by the Plaintiff of the terms of the tenancy Agreement. That action was taken under the Resettlement Ordinance. The land in suit was part of an area supposedly held under a Crown Land Permit granted to one CHU Ka-nai. I say “supposedly held” because the only permit in evidence was one which expired on 31st December, 1961, but it appears to have been assumed that this was renewed from year to year until the re-entry on 31st December, 1970. CHU Ka-nai and Miss CHEUNG Yin-hing let the larger area to the Defendant for a term of eight years from 15th May 1967 to 14th May 1975. That letting was made during the currency of a letting by the same landlords to the Defendant’s husband for a term of fifteen years from 15th May 1960 to 14th May 1975, but all the parties seem to have treated the earlier agreement as having been rescinded and nothing turns upon it. By the date of the said tenancy Agreement dated 1967 the Defendant’s husband had erected the structures which were let to the Plaintiff.

3.  It was further found that towards the end of 1968 this area was surveyed by the Resettlement Department and that the officers of that Department then designated the two structures built by the Defendant’s husband for use as chicken sheds only. This was, in effect, an extension of the user permitted under the Crown Land Permit, which had been limited to “cultivation”. The Plaintiff became interested in the structures as a result of an advertisement in a newspaper to the effect that there were factory premises to let in the New Territories. The judge was satisfied that the advertisement referred, inter alia, to these two structures. The negotiations leading to the tenancy were carried out between the Plaintiff and the Defendant’s husband. The husband knew that the permitted use of the structures was use for chicken sheds only, but he did not tell that to the Plaintiff. On the other hand the judge appears to have believed that the husband did not tell the Plaintiff that use as a factory was permitted: his view was that the husband led the Plaintiff into a trap. He went on to say

“that the Plaintiff knew or ought to have known that the structures erected on a hill-side in the New Territories were probably fit for agricultural or farming purposes only but being eager to start his factory he was prepared to take the risk. In short both parties harboured the thought that once the factory has been established the proper authorities would be presented with a fait accompli and would not refuse permission – a sentiment which is not uncommon with the farming people in the New Territories”.

Finally, the judge rejected the allegation that there had been misrepresentation by or on behalf of the Defendant.

4.  The only part of the tenancy Agreement between the Plaintiff and the Defendant which it is necessary to reproduce is Clause 4. There was some doubt at the trial as to the correct translation of the Chinese characters used by the parties and expert evidence was called. It is sufficient to say that the doubt centred upon the question whether the Plaintiff covenanted to use the structures for the stated purpose or whether he merely covenanted not to use it for any purpose other than the stated purpose. The interpretation accepted by the learned judge was as follows:

“The lessee is to make use of the structures for proper industrial purposes and shall not do anything in contravention of the law or regulations of the Government of Hong Kong. All Government matters in connection with or arising from the industry shall be attended to by Party (B) himself ......”

and the judge understood that to mean that the clause was restrictive rather than compulsive.

5.  The contention on behalf of the Defendant, which was accepted by the learned judge, was that in the absence of misrepresentation caveat emptor. He therefore held that the Plaintiff was liable to pay rent up to the date when the Crown re-entered and he was evicted by title paramount.

6.  It must be mentioned that, although in dealing with the Plaintiff’s claim the learned judge accepted that the Plaintiff was the tenant of the structures, this was in dispute in the action, because the Defendant alleged that the letting was to the Wah Hing Plastic Factory, of which the Plaintiff said he was the sole proprietor but which the Defendant believed to be a firm. The agreement itself is contradictory as to the parties. At the commencement it describes CHAN Mei-lin (the Defendant) as “Lessor” and TANG Wah-leung as “Lessee”. It then refers to “Party A the Lessor” and to “Party B”. At the end of the document the parties are described as follows:

“Lessor: Party A (Sd.) Chan Mei Lin Address: 24, Whampoa St. 3rd fl.

Lessee: Party B (Sd.) Wah Hing Plastic Factory and Tang Wah Leung. Address: Lot No. 4421 Choi Hung Village”

This last description of the lessee cannot, I think, be correct. The learned judge did not, however, deal with this issue expressly and I can only assume from the fact that he found the Plaintiff (“TANG Wah-leung trading as Wah Hing Plastic Factory”) entitled to recover from the Defendant a deposit paid in pursuance of the agreement that he was satisfied that Wah Hing Plastic Factory was a sole proprietorship, despite the fact that the Business Registration Certificate which was adduced in evidence suggested that from 19th May 1968 up to 1st September 1969 TANG Wah-leung had a partner.

7.  The learned judge having, as we have seen, considered what was the true interpretation of Clause 4 of the agreement went on to say:

“There is nothing illegal per se in establishing a plastic factory. Further, the words ‘All Government matters in connection with or arising from the industry should be attended by Party B (i.e. the Plaintiff) himself ......’ do not amount to a covenant by the Plaintiff to guarantee to obtain a conversion of user by the Government. In my previous findings of facts I found that the original intention of the parties in Exh. P3 anticipated that the structures was to be used for industrial purposes. I found that the Defendant (landlord) knew at the time that the user of the structures was restricted to chicken sheds. I also found as a fact that Law Chi never warned the Plaintiff about the user of these structures in June 1969. Neither the Plaintiff nor the Wah Hing Plastic Factory committed any breach of agreement by using the structures as a plastic factory. If anything is wrong it is that both parties knowing that such mode of user is contrary to the conditions of the Crown Land Permit allowed the structures to be used as a factory. Even after a query was made by the District Officer Yuen Long the Defendant was assisting the Plaintiff to justify or to plead for the existence of the factory. Sufficient it is to say that the Defendant’s claim for damages should fail on the principle of “In pari delicto potior est conditio defendantis’. Apart from this the Defendant has adduced no evidence to show any damages he has suffered apart from the demolition of the two structures.”

As I understand this passage it means that the judge found that the agreement was not illegal but was a valid and enforceable agreement, that the Plaintiff was in breach of Clause 4, but that the Defendant, being in pari delicto as regards that breach, should not be assisted by the court to recover damages in respect of it. He made an order for payment of rent (presumably by TANG Wah-leung) up to 31st December 1970 but set this off against the deposit held to be recoverable by the Plaintiff. He dismissed the claim for loss due to demolition of the structures and to re-entry by the Crown.

8.  Upon the appeal counsel for the Defendant contends that, assuming the judge was right to hold that the agreement was not illegal (and the Plaintiff does not now allege that he was wrong upon that point), he was nevertheless wrong to say that the parties were in pari delicto. It follows, counsel submits, that the Defendant was entitled to damages for breach of the covenant. However, presumably appreciating that illegality is a matter which the court is bound to consider, whether it is raised by his opponent or not, counsel has taken us through the provisions of the Resettlement Ordinance and has then sought to satisfy us that the agreement was not illegal and that the Defendant has done nothing which can deprive her of her right to compensation for the Plaintiff’s breach of covenant.

9.  The enforceability of the agreement depends upon the true interpretation of Clause 4. It is clear that use of the structures as a plastic factory was not permitted, either by the original Crown Land Permit or by the apparent extension of the permitted use to use for chicken sheds after the survey of 1968. It is submitted that the structures became “unlawful structures” within the meaning of s.2 of the Resettlement Ordinance because they were

“.... maintained .... otherwise than in accordance with the terms of the .... permit on land held on .... permit from the Crown”

and that they were so maintained not by the Defendant but by the Plaintiff. There is no suggestion that they were unlawful structures at the time they were erected, but the contention is that the change of use to use as a plastic factory rendered them unlawful. The definition employs the word “maintained” and not “used”, but it is submitted that in the context they are synonymous, although it is conceded that it is an unhappy use of the word “maintained’. I think that must be right. The question, therefore, is whether the Defendant was in any way party to the use of the structures as a plastic factory. If Clause 4 was merely restrictive, as held by the judge, then she was not party to the use which led to their demolition. As to this counsel submits that the judge correctly understood the words “The lessee is to make use of” as being an indication of intention and as equivalent to “The lessee intends to make use of”. On the other hand, if the true equivalent is “The lessee must make use of” then (assuming for the moment that no “industrial purpose” could be consistent with the terms of the permit under which the land was held, even as extended after the survey of 1968) the Defendant would be agreeing to the Plaintiff’s using an unlawful structure. The learned judge was aware that the issue of interpretation was between a version which made the covenant compulsive and a version which made it restrictive. The court translator who first suggested the translation “is to make use of” was not asked whether the Chinese indicated any sense of obligation, but another court translator, who accepted these English words as correct “because ‘is to’ has a wider sense than ‘has to’”, nevertheless said that in his view an obligatory sense was to be inferred in the Chinese by reason of what followed. It would seem that the learned judge rejected that view and I confess that the logic of this translator’s opinion is not clear to me. No doubt the learned judge took the view that if there were any doubt he ought to interpret the covenant in a manner which would not produce an illegality and I would not be disposed to disagree with his conclusion. If the Plaintiff was not obliged to use the structures for an illegal purpose then the fact that he might have taken a tenancy of premises which, in the event, he could not use lawfully would not invalidate the agreement.

10.  We heard some argument based upon the provisions of s.13 of the Resettlement Ordinance, under which a building may be deemed to be an unlawful structure. I shall have to come back to this section but I do not think it can have any bearing upon the question whether the agreement itself was illegal. It is not until a notice is served and is not complied with that a building is deemed to be an unlawful structure under the section, and no notice had been served at the date of the agreement.

11.  Having come to the conclusion that the learned judge was entitled to hold the covenant to be merely restrictive, I prefer not to decide what might have been the position had I thought it was obligatory. I do not think it would be reasonable to interpret “industrial use” as including use for cultivation or chicken farming although the phrase “farming industry” is sometimes heard. It might still be arguable that the reference to “proper” industrial use indicated an intention that the Plaintiff would obtain a change in the terms of the Crown Land permit, but if that were the correct interpretation the agreement would be frustrated if the authorities refused to alter the terms of the Crown Land Permit. We ought to leave a consideration of such interesting possibilities until they arise.

12.  In my view once it was held that the agreement was valid and enforceable there was no good ground for refusing a remedy for breach of Clause 4. What we are concerned with is not what intentions the parties harboured within their breasts but what intentions they have expressed in their instrument. The learned judge found as a fact that, even when the Defendant discovered the breach of covenant and the officers of the Government began to demand a stop to the unlawful use being made of Crown land, the Defendant’s husband supported the application of the Plaintiff to be allowed to continue that use. I do not regard that as a waiver of the Defendant’s right to enforce the covenant. It is true that s.13 of the Resettlement Ordinance gives power to the competent authority to require the “owner” of a building to furnish him with proof to his satisfaction that the building “is in accordance with the terms of the Crown lease or permit under which [the land on which it has been erected] is held”. The judge found that due notice had been served in respect of the structures and that no proof had been furnished with respect to them. All this happened when the Plaintiff had been in breach of Clause 4 of the agreement for some time. We have not heard any argument as to who is an “owner” within the meaning of this section and I am prepared to assume for the purposes of this judgment (without deciding) that the Defendant is an “owner” and that she was responsible for these structures’ becoming “deemed” to be unlawful structures. Since they were already unlawful structures the wording of the section is hardly apposite but, be that as it may, the facts that they were unlawful structures and that the Defendant was unable to furnish proof that they were not unlawful structures was due to the breach of covenant by the Plaintiff. There seems to be no doubt that the re-entry as well as the demolition of the structures was a result of breaches of conditions of the Crown Land Permit which were directly attributable to the Plaintiff.

13.  Although no point has been taken in relation to it in the course of the argument there is a matter which it may be desirable to mention both for the sake of completness and lest it cause the Registrar any anxiety. McMullin, J. has drawn our attention to apparent discrepancies between the pleadings and the evidence as to the identity of some of the parcels of land referred to. I am indebted to him for the assistance he has given me in satisfying me that the various errors of description which have been made give no cause for fear that the order which I am about to propose is inappropriate. I do not think it is necessary to burden this judgment with the details.

14.  In my view the cross-appeal must be allowed against the Plaintiff (or first Defendant to the counter-claim). It has been submitted that the damages should include (i) the value of the demolished structures and (ii) compensation for the loss of rent under the agreement for the period after re-entry by the Crown. With that I agree, but it is then submitted that we should enter judgment for the Defendant in the sum of $30,000 under the first head. In my view we should not do that. The Defendant had no estate in the land and, although it was not open to the Plaintiff to deny her title to let, that is a factor which is properly to be considered in assessing damages: the Defendant was at risk of eviction at short notice and upon eviction would have lost the structures which her husband had erected. Similarly it was a matter of uncertainty whether the Defendant would have enjoyed the rents for the full term of the tenancy even if there had been no breach of the conditions of the Crown Land Permit. I do not think we are in a position to assess any of the damages now claimed and that the case should be referred to a Registrar for an assessment to be made.

15.  I propose that the Defendant be awarded all the costs of the counter-claim in the court below and the costs of this appeal.

12th December, 1972.

Appellant absent

Mills-Owens (R. Young & Co.) for Respondent