SPOKESMAN ENTERPRISES LTD v. CHEUNG YUK SHING t/a KAM SHING MOTOR TRADING CO

HCA 3764/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3764 OF 2003

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J U D G M E N T

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Introduction

1.  This is the trial of two actions pursuant to the order of the master, with Action No 3764 of 2003 (“2003 Action”) to be heard before Action No 1218 of 2004 (“2004 Action”). 

2.  The plaintiff in the 2003 Action, Spokesman Enterprises Limited (“Spokesman”), sues Mr Cheung Yuk Shing trading as Kam Shing Motor Trading Co (“Cheung”) for arrears of rent in the sum of $1,050,000 for the period between 1 April 2003 to 31 October 2003 in respect of certain lots in DD 114, Pat Heung, Yuen Long, New Territories (“the Lots”), vacant possession of the Lots and mesne profit from 1 December 2003 to the date of delivery of vacant possession.  On 1 April 2004, Master Au Yeung, as she then was, entered summary judgment against Cheung in respect of vacant possession and mesne profit.  Cheung’s appeal against the master’s decision was dismissed by me on 30 November 2004.  Cheung’s appeal against my decision was dismissed by the Court of Appeal on 26 May 2005: see CACV 398/2004.  The outstanding matter in respect of the 2003 Action is Spokesman’s claim for arrears of rent in the sum of $1,050,000 and Cheung’s counterclaim for rental advancements.

3.  In the 2004 Action, Cheung sues Mr Tang Hoi Ip (“Tang Senior) and Mr Tang Man Wai (“Tang”) for recovery of overpayment of rent which included the rental advancements referred to in the 2003 Action.

The background

4.  Tang Senior is the owner of a large number of lots of land including the Lots in Pat Heung in Yuen Long.  After his son, Tang, returned from Canada in 1979, he authorised Tang and later Spokesman as his fully authorized agent to handle all tenancy matters concerning his land.  Spokesman is a company incorporated and wholly owned by Tang.

5.  Cheung had been trading under the name of Kam Shing Motor Trading Co since 13 August 1984.  He was assisted by his two sons, Cheung Chi Kwan and Cheung Chi Kin.  His business was to lease land from indigenous villagers in the New Territories and sub-lease the land for use as open storage. 

6.  Cheung and the Tangs had a long-standing relationship.  Cheung had been the tenant of Tang Senior since 1992.  There is at least documentary proof that Kam Shing Motor Trading Co had entered into at least two written tenancy agreements with Spokesman dated 30 March 1998 and 25 January 2000 in respect of some of the lots owned by Tang Senior (“1998 Tenancy Agreement” and “2000 Tenancy Agreement” respectively).  The two tenancy agreements were signed by Cheung Chi Kwan on behalf of Kam Shing Motor Trading Co.  In breach of the 1998 Tenancy Agreement and the 2000 Tenancy Agreement, Cheung failed to pay rent to Spokesman since December 1999 which resulted in Spokesman instituting High Court Action No 2884 of 2000 (“2000 Action”) against Cheung.  The 2000 Action was settled by Cheung making full payment as claimed without any set-off or deduction. 

7.  On 10 January 2002, the parties entered into a tenancy agreement (“2002 Tenancy Agreement”) in respect of the Lots, which are the subject matter of the present action, for a term of two years commencing on 1 January 2002 and expiring on 31 December 2003 at a monthly rent of $150,000.  Clause 4 of the 2002 Tenancy Agreement provides that should the Defendant fail to pay any rent within 14 days, the Plaintiff shall have the right to terminate the agreement and claim for any rent outstanding.  The agreement was signed by Cheung Chi Kwan on Cheung’s behalf.  The rentals were paid up until the end of March 2003 and were acknowledged by receipts issued by Spokesman.  Since April 2003, Cheung defaulted in paying rent to the Spokesman and the total amount of rental outstanding as at 1 October 2003 was $1,050,000.  The Plaintiff is now suing for that amount under the 2002 Tenancy Agreement in the 2003 Action.

8.  On a date which is in dispute, Cheung Chi Kwan purportedly signed an undated agency agreement (“Agency Agreement”) for the appointment of an agent for a term of two years at a monthly management fee of $50,000 and payment of $100,000 deposit.  The Agency Agreement was undated and addressed to Kam Shing Motor Trading Co.  The amounts equal to deposit and monthly payments were paid to Tang from January 2002 until April 2003.  Those payments were acknowledged on the receipts sometimes as agency fee and sometimes as rental and stamped with the personal chop of Tang.  No further payment was made thereafter. 

9.  On the other hand, there is no dispute that as early as April 1997, Cheung had been paying monthly sums of $50,000 to Tang, inclusive of the amounts referred to in the above paragraph.  The amount thus paid for the period from April 1997 until May 2003 was $3.7 million.  In the 2004 Action, Cheung is suing for recovery of the said $3.7 million as rental advancement under the 2002 Tenancy Agreement and earlier tenancy agreements.

The parties’ case

10.  Cheung’s pleaded case in respect of both actions is that Tang misrepresented to him that Spokesman was the landlord of the Lots and that for tax saving purposes of Spokesman, Cheung should pay Tang a monthly sum of $50,000 as rental advancements which would be repayable upon Cheung’s request.  As a result of the misrepresentation, he entered into various tenancy agreements, including the 2002 Tenancy Agreement. 

11.  In the 2003 Action, Cheung does not deny liability to pay rent and admits that he had not paid rent to Spokesman from April to October 2003.  His defence is that the monthly rental advancements of $50,000 paid to Tang which amounted to $3.7 million were more than off-set the arrears of rent in the sum of $1.05 million.  He counterclaims for the balance after such set-off.  Spokesman’s defence to the counterclaim is that the monthly payments were agency fees or management fees under the Agency Agreement for arranging for construction of roads to provide access to the various lots leased to Cheung and for coordinating with the landlords and users of the other lots in the vicinity.

12.  In the 2004 Action, Cheung claims against Tang Senior and Tang the rental advancements of $3.6 million and the deposit of $100,000, making a total of $3.7 million.  He also pleads in the alternative that there was a total failure of performance under the Agency Agreement and claims damages.  The Tangs’ defence is that the monthly payment of $50,000 was management fee paid pursuant to the Agency Agreement.

13.  It is plainly obvious that Cheung’s pleaded defence in the 2003 Action is defective.  The parties to the action are Spokesman and Cheung, whereas the recipient of the rental advancements was Tang.  There was no allegation that Tang received the rental advancements as agent of Spokesman.  Cheung cannot rely on a set-off among different parties.  Cheung’s defence was criticised by me and the Court of Appeal in relation to his appeal against the summary judgment entered by the master.  Yet, although an amended defence was filed shortly before trial, his legal team has failed to perfect the defence in the intervening five years.  However, as Cheung instituted the 2004 Action which is based on the same set of facts, I am prepared to deal with the merits of the 2003 Action together with the merits of the 2004 Action, rather than to strike out the 2003 Action on a technicality.

14.  The only key factual issue in both actions is whether the rental advancements were payments of management fees as alleged by Tang or purely monetary advances which Cheung is entitled to recover as money had and received.  To determine that issue, it would be helpful to investigate into the purpose for which the management fees were allegedly paid.

The purpose for which the management fees were allegedly paid

15.  The Lots were among various other lots of land along and off Kam Tin Road, which used to belong to the common ancestor of Tang Senior and Tang Koon Yung and possibly others.  The Lots were located towards the interior region off Kam Tin Road but could be reached via three Access Roads 1, 2 and 3.  These access roads are not public roads but private roads which traverse over many lots of land belonging to Tang Senior, Tang Koon Yung or others or the ancestral land belonging to their tong or tso.  Without these passageways, heavy industrial vehicles could not access the Lots from Kam Tin Road.  These roads were built and maintained by the landowners, their tenants or villagers. 

16.  Tang’s case for charging management fee is as follows.  Without the cooperation of the other landowners, their tenants or villagers, the access roads would be blocked and Cheung and his tenants would be denied vehicular access to the Lots he rented from Spokesman and other lots he rented from others.  The purpose of payment of management fee was to secure the use of the access roads by Cheung.  Throughout the years since 1992, Cheung paid him $30,000 to $50,000 per month as management fee for the purpose of coordinating the use of the access roads by Cheung.  He shared the payments equally with Tang Koon Yung and another party to secure the cooperation from members of Tang Koon Yung’s family and other landowners in the vicinity.  Tang would be called upon to make contributions to the maintenance and servicing of the access roads whenever necessary.  He had to arrange or to pay for various ancillary services such as servicing and maintaining the access roads, providing and servicing drainage, applying and paying for supply of electricity and construction of lampposts etc.  Tang Senior owned about four million square feet of land in the vicinity and was well respected.  In case dispute arose out of the use of the access roads by Cheung, Tang had to resolve the disputes among the landowners, their tenants and villagers.  In addition, in return for the payment of management fee from Cheung, Tang had to assist in Cheung’s application to the Town Planning Department for temporary waiver of the use of the Lots rented to Cheung so that the Lots rented to him could be used as open storage, which was the purpose for which Cheung rented the Lots from Spokesman.

17.  Cheung’s case is that Access Road 1 and Access Road 3 were built by him on lots which he leased.  Hence there was no need for any management services to be provided by Tang.   

18.  There is no dispute that Access Road 1 was constructed in about 1984 and extended by 1989 to Lot 276 which did not belong to Tang Senior.  In 1988, Cheung started to rent various lots in the vicinity belonging to Tang Senior.  Then Cheung constructed a link road inside the Lots rented from Tang Senior linking those Lots with Access Road 1 and Access Road 2.

19.  Cheung said that as the link road was built by him within the Lots rented by him, there was no need for any management service to be provided by Tang.  That is not in dispute.  What is in dispute is that Cheung alleged that he was the tenant of the other lots on which Access Road 1 and Access Road 3 were built and that those two access roads were built by him.  Tang maintained that part of the access roads were built on land belonging to Tang Senior, Tang Koon Yung or land belonging to their tong or tso.  He admitted that Access Road 1 and Access Road 3 were built long time ago and before the Lots were leased to Cheung.  But he disputed that they were built on land rented to Cheung.  Save that it is common ground that the exit of Access Road 3 at Kam Tin Road was built on a lot belonging to Tang Senior, Tang offered no evidence to support his assertion that the rest of Access Road 1 and Access Road 3 were not built on land rented by Cheung.  As for Cheung, there is no dispute that he rented a lot of land in the vicinity apart from those belonging to Tang Senior.  But he also produced no evidence in support of his assertion that the land on which Access Road 1 and Access Road 3 ran were land rented by him.  There is no dispute that the lots in question were owned by Tang Koon Yung or their tong or tso, but whether they were rented to Cheung is in dispute.  In the witness box, Cheung waved a bag of familiar looking tenancy books used in relation to lease of land in the New Territories and said they were proof of his tenancies in respect of those lots.  None of those documents had been discovered in the course of the past five years leading to this trial.  Cheung could not identify the particular tenancy books in relation to the relevant lots in question.  No application has been made for late discovery.  The burden of proof rests on the party who seeks to prove the affirmative.  I cannot be satisfied that at the material time Cheung was the tenant of all the lots on which Access Road 1 and Access Road 3 were built.  Certainly at least one lot at the exit of Access Road 3 was and still is owned by Tang Senior and not leased to Cheung.

20.  On the totality of the evidence, Tang’s evidence is probably closer to the truth.  These access roads might have been built by Cheung.  They might even have been built before Tang took over the tenancy matters from Tang Senior in 1979.  But, on the totality of the evidence, it is more likely than not that at least part of the roads were built on ancestral land or on land owned by Tang Senior, Tang Koon Yung and others.  Land use matters in the New Territories are usually very complicated, especially in respect of access to land which is off the public thoroughfare.  This is particularly so in the case of tenants who are not indigenous villagers of the area.  Relationship and payment are the usual keys to resolve such difficulties.  Cheung disputed the need for Tang to coordinate with the others for the access roads had never ever been blocked by the villagers.  To this, Tang’s reply was that the harmony was maintained because he had paid two-thirds of the management fee to Tang Koon Yung to secure the cooperation from Tang Koon Yung and his family members who owned the lots on which the access roads were built.  Furthermore, the access roads which ran on land not leased to Cheung had to be maintained and serviced by people other than Cheung. 

21.  It is argued that there could be no services to be provided by Tang.  I do not agree.  It is possible that there were services to be rendered by Tang by way of coordination and payment of certain expenses in connection with the maintenance of the access roads, such as payment for electricity for the lighting etc and payment to Tang Koon Yung to secure the cooperation from his family for the use of the access roads.  This finding suggests that Tang’s case is at least credible in that there may be a purpose for which the management fees were allegedly paid.

Events leading to the signing of the Agency Agreement

22.  According to Tang, in or about August 1992 he reached verbal agreement with Cheung that in consideration for his providing management service to facilitate the use of the lots rented by Cheung, Cheung would pay him management fee of $30,000 a month.  Cheung had been paying him $30,000 monthly management fee since 1992, which was increased to $40,000 in September 1992 and then to $50,000 in January 1996.  Prior to April 1997, the management fee was collected by Tang Koon Yung who had also rented land to Cheung.  Tang Koon Yung would then pay over Tang’s share to Tang.  Since April 1997, Tang collected the management fee from Cheung and paid over Tang Koon Yung’s share to Tang Koon Yung.

23.  In December 1999, Cheung defaulted in paying rent to Spokesman and Spokesman instituted action for recovery of arrears of rent under the 2000 Action.  Cheung settled the action by making full payment.  Because of that experience, when Tang negotiated the 2002 Tenancy Agreement with Cheung Chi Kwan, he secured Cheung Chi Kwan’s confirmation that Cheung would continue to pay the monthly management fee of $50,000 and instructed his personal assistant, Ms Tsang Mei Ling (“Tsang”), to prepare an agency agreement for Cheung to sign. 

24.  Tsang sought advice from her colleague and predecessor who gave her a sample agreement.  She typed in the name of Kam Shing Motor Trading Co, the location of the Lots, the term of the agency agreement and the amount of the management fee.  Then Tsang took the 2002 Tenancy Agreement and the Agency Agreement to Cheung’s office for Cheung Chi Kwan’s execution.  Cheung Chi Kwan signed both documents and affixed the chop of Kam Shing Motor Trading Co in her presence.  Counsel suggested to Tsang that the documents were not signed by Cheung Chi Kwan.  Tsang denied.  Cheung also denied that the signatures on the documents were his son’s.  Similar signatures purporting to be signed by Cheung Chi Kwan were filed in the trial bundle.  Cheung Chi Kwan was not called to give evidence.  The reason tendered by Cheung was that the case had nothing to do with Cheung Chi Kwan and Cheung Chi Kwan had to make his living as a driver.  I consider these are lame excuses.  The allegation raised by Cheung is a very serious one.  It is only to be expected that he will back up his allegation with the testimony of the person whose signature was alleged to be forged.  There is nothing to suggest that Cheung Chi Kwan in his occupation as a driver could not be made available at any time during this five days trial to attend court to give evidence on such a short matter.  I think it is open to me to draw the inference that Cheung Chi Kwan’s evidence is not going to assist Cheung’s case: see O’Donnell v Reichard [1975] VR 916 at 929 and Li Sau Keung v Maxcredit Engineering Limited and Another [2004] 1 HKC 434.  I accept Tsang’s evidence that the 2002 Tenancy Agreement and the Agency Agreement were both signed by Cheung Chi Kwan in her presence.

The Agency Agreement

25.  The Agency Agreement was not a well-drafted agreement.  It was addressed to Kam Shing Motor Trading Co.  The services to be rendered under the Agency Agreement were to construct and maintain the access roads serving the various Lots of land, resolve disputes between the users of the various lots of land and co-ordinate and manage their use, to assist in applying to government for toleration or temporary waiver of the use of the Lots and to liaise with the government on the matter.  These are precisely the services which Tang said he was obliged to provide as consideration for the management fee.  There is no dispute that Tang assisted Cheung’s application to the Town Planning Department for permission under section 16 of the Town Planning Ordinance for temporary conversion of use of the Lots in 1997.  The management fee and term of the Agency Agreement all tied in well with Tang’s evidence.

26.  As for the appointee stated on the Agency Agreement, Tsang admitted it was her mistake due to her limited knowledge of the English language.  In view of the factual background, it is plainly obvious that the intention of the parties was for Cheung or Kam Shing Motor Trading Co to appoint Tang as his agent to provide the services stated in the agreement.  It would be absurd for a person to execute an agency agreement appointing oneself as one’s own agent. 

27.  It is suggested that Cheung Chi Kwan did not know any English and could not understand the Agency Agreement.  Be that as it may, the signatures on both documents were made in English which suggests that Cheung Chi Kwan was not at all illiterate in English and besides Cheung Chi Kwan was not called to give evidence.  This is a commercial document.  Any defence of non est factum is unlikely to be upheld.  Furthermore, Spokesman’s case does not stand or fall on the Agency Agreement.  The Agency Agreement only evidences the existence of the agreement which was not required by law to be evidenced or made in writing.  I accept that the Agency Agreement corroborates Tang’s evidence that he had secured Cheung Chi Kwan’s confirmation to pay management fees. 

The payments of management fee pursuant to the Agency Agreement

28.  According to Tsang, she collected the monthly management fee from Cheung or Cheung Chi Kwan pursuant to the Agency Agreement.  Usually the fee was paid by Cheung Chi Kwan at Cheung’s office.  She acknowledged payment by issuing receipts.

29.  Tsang distinguished between rental payments for the Lots and management fee payments.  In respect of the former, she issued receipts stamped with the company chop of Spokesman.  In respect of the latter, she issued receipts stamped with the name of Tang.

30.  On the first receipt issued pursuant to the Agency Agreement dated 18 March 2002, Tsang acknowledged receipt of $150,000 as “1/02 Agency Fee 及2個月按金 …” and she quoted the location of the Lots in question.  On the second receipt issued on 27 April 2002, she acknowledged receipt of $50,000 as “2/02 Agency Fee”.  Those receipts are consistent with Spokesman’s and Tang’s case about the management fee.

31.  However, on the subsequent receipts, Tsang acknowledged receipt of $50,000 as rent and not as agency fee.  Those receipts are seized upon by Mr Koo, counsel for the Defendant, as evidence that the payments were rental advancements as alleged by Cheung.  Tsang explained that she understood the $50,000 was paid as management fee under the Agency Agreement.  Hence, when she issued the second receipt, she deleted the word “rent” which she inadvertently wrote down and put down “agency fee” instead by following the first receipt.  However, on subsequent occasions, due to her carelessness she wrote down the word “rent” instead.  Looking at the totality of the evidence, I accept her explanation and her evidence.

Cheung’s conduct

32.  Mr Pau, counsel for the Plaintiff, referred to the 2000 Action in which Cheung was legally represented.  Cheung settled Spokesman’s claim for arrears of rent without asking for a set-off by reason of the rental advancements he had made throughout the years.  By the time of that action, the rental advancements would have accumulated to about $1.8 million which exceeded Spokesman’s claim of $347,126.40 by over $1.5 million.  Yet, with the benefit of legal advice, Cheung settled the claim without demanding a set-off.  Cheung’s explanation is that as he and Spokesman were still in the relationship of landlord and tenant and as long as he was able to sublease the Lots to his sub-tenants at a profit he would not mind paying the rental advancements without demanding any set-off, but he will claim the rental advancements now that relationship was terminated. 

33.  On his evidence, the agreement was that he would be repaid the advancements as and when he requested repayment.  In view of the large amount then outstanding and the hostile manner in which Spokesman initiated legal action, it defies common sense that if Tang was indebted to him for $1.8 million, he would not have raised any complaint to Tang or to Spokesman and demanded, if not a complete set-off, a reduction in the amount to pay.  Instead, he settled in full.  By the time of the 2003 Action, the rental advancements have accumulated to $3.7 million.  Cheung also offered the same explanation.   

34.  On the other hand, Cheung never complained about the receipts in which those sums totalling $3.7 million were acknowledged as rental payments.  If there was any truth in his case, he would have objected to the receipts and insisted that the payments be acknowledged as rental advancements, which, according to him, was the true nature of the payments.  Cheung explained that he treated rental payments much the same as rental advancements.  That is a very strained argument for if he accepted the payments were rental payments as acknowledged on the receipts, he would have no evidence to support his claim for rental advancements and for repayment.

35.  I think Cheung’s conduct was more consistent with the lack of any agreement to pay rental advancements than if there was one. 

Discussion

36.  I find Tang Senior, Tang and Tsang are credible witnesses.  Their account is inherently credible.  I accept their evidence.  On the other hand, Cheung’s account is inherently incredible.  His assertion that payment of the rental advancements to him was a tax saving scheme of Spokesman does not make any sense if the payment was repayable upon Cheung’s demand.  I reject Cheung’s evidence. 

37.  On the totality of the evidence, I find that Cheung and Tang had a long-standing agreement to pay Tang management fee in return for Tang providing maintenance for the access roads leading to the Lots he rented from Spokesman and the lots he rented from Tang Koon Yung and others and to coordinate with the other land owners, tenants and villagers in connection with his use of the access roads.  This agreement was supported by consideration.  The agreement was evidenced by the Agency Agreement.  The parties acted pursuant to the Agency Agreement.  Cheung paid monthly maintenance fee and Tang performed his obligations under the agreement.  Some of the monthly payments of $50,000 were evidenced in the receipts as payments for management fee while others were acknowledged by mistake as rent.  Cheung’s evidence that the payments were rental advancements is just a concoction.  I accept Tsang’s evidence that Cheung Chi Kwan signed the Agency Agreement in her presence and about her mistake in the receipts.  I also accept Tang’s evidence that Cheung had agreed to pay him $50,000 monthly management fee in accordance with the terms of the Agency Agreement.

Conclusion

38.  In respect of the 2003 Action, Cheung does not dispute liability to pay rent.  He only seeks a set-off, albeit against a different party.  His claim for set-off is based on the fact that the management fee payments were rental advancements repayable upon demand.  In view of my finding that those payments were not rental advancements, Cheung has no right to set-off.  Therefore, he has no defence whatever to Spokesman’s claim.  Accordingly, I enter judgment in the amount of $1,050,000 being seven months arrears of rent for the period from 1 April 2003 to 31 October 2003 and one month’s mesne profit for the month of November 2003, all at the rate of $150,000 per month, less payment received on 6 November 2003 in the amount of $150,000.  The Defendant shall pay interest on the said sum of $1,050,000 from the date of issue of the Writ at judgment rate until payment.  The Defendant’s counterclaim is dismissed.  I also make an order nisi that the Defendant shall pay the Plaintiff’s costs.  Such costs are to be taxed if not agreed.

39.  In respect of the 2004 Action, Cheung sues Tang Senior and Tang for recovery of overpaid rent or rental advancements.  In view of my finding of fact that there was no agreement for payment of rental advancements and that the payments were payments for management fee, the action must be dismissed with an order nisi that the Plaintiff shall pay the costs of the Defendants.  Such costs are to be taxed if not agreed.