SOUTHLAND CO LTD AND OTHERS v. CLASSIC NETWORK LTD

DCCJ6397/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6397 OF 2005

D E C I S I O N

1.    This is an Order 14 application.  The plaintiffs seek rectification of a tenancy agreement in respect of a commercial property rented by the defendant. 

2.    The relevant provision the plaintiffs seek to rectify relates to a rent-free period of 14 months from 20 September 2004 to 19 October 2004 and from 20 September 2005 to 19 October 2006, as stated on the written agreement.

3.    It is the case of the plaintiffs that the year 2006 was mistakenly typed on the tenancy agreement by the plaintiffs’ solicitors.  The real agreement between the parties was a rent-free period of 2 months in total instead, i.e., on 20 September 2004 to 19 October 2004 and from 20 September 2005 to 19 October 2005.

4.   The plaintiffs exhibited as evidence a provisional agreement in Chinese recording the originally agreed rent-free periods.  Similar to the formal agreement, the term of the tenancy as stated on it was 3 years. The director of the defendant, Mrs Rella Li, affirmed that she noticed the change of rent-free period when she was asked to sign on the formal agreement.  She also noticed the incorporation of certain terms that favoured the landlord.  She did mention to the estate agents that there were changes in the formal agreement but the estate agent just asked her to sign it or leave it.  She then signed on the formal agreement.  The original offer she made to the estate agent was a five-year lease with six months rent-free period. 

5.   It is submitted by Mr Lam, counsel for the defendant, that it was only a unilateral mistake on the part of the plaintiff.  Mr Lam submits further that the provisional agreement, or as described by him, the Chinese Written Memorandum, does not show a common intention continuing up to the point of the signing of the formal agreement.  It is suggested that Mrs Li was led to believe that negotiation was still open even after signing of the Chinese Written Memorandum.  It is also suggested that Mrs Li did not know the plaintiffs had made a mistake and believed that it was agreed between the parties that the rent-free period would still be changed from  2 months to 14 months. 

6.   There was no suggestion of any negotiation or even mention of changing the rent-free period after the signing of the Chinese written Memorandum in Mrs Li’s evidence. 

7.    In her evidence she did not specifically inquire upon such a significant change with the estate agent when she noticed the change.  The difference is to the extent of 12 months rent representing over HK$200,000.  It is incomparable to the other additional provisions in the formal agreement incumbent upon the tenant.  It is not only against commercial sense but also against common sense to suggest that Mrs Li would have a genuine belief that there was a new offer from the landlord allowing the defendant to have 12 months more rent-free period.  One should bear in mind that the defendant only requested a rent-free period of six months when they first made the offer.

8.   Miss Chin, solicitor representing the plaintiffs referred me to paragraph 43-13 of Snell’s Equity, 13th edition, I will not quote the whole paragraph here in my judgment and I respectfully adopt the principles outlined therein. 

9.   In the present case it is unbelievable that Mrs Li might have an impression that the essential terms of the tenancy, for example, the rent, rent-free period, duration as stipulated on the signed Written Memorandum were not terms binding on both parties given the fact that a substantial amount of deposit had been paid by the defendant and it was liable to be forfeited should the defendant not comply with the terms of the Memorandum.

10. I note the allegations by Mrs Li against the estate agent that he misled her into believing that the terms were still open for negotiation.  Such allegations are simply unbelievable in view of the Written Memorandum.  It is simply unarguable that Mrs Lee must have actual knowledge of the plaintiffs’ mistake or at least wilfully shut her eyes to the obvious.  As submitted by Miss Chin, the defendant is simply taking advantage of the plaintiffs’ mistake.

11. The common intention of the parties was obviously a rent-free period of two months as stipulated under the Chinese Memorandum and it would only be conscionable or equitable to rectify the tenancy as requested by the plaintiffs.  Therefore, I will make the order in terms of the Order 14 application.  Order in terms of the summons. 

(Submissions re costs)

12. Costs of this action be to the plaintiff by gross sum assessment at $16,000.