LAM SIU HAY v. CHELEX LTD

HCA 1612/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1612 OF 2010

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J U D G M E N T

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1. This action arose out of a tenancy of a workshop in an industrial building in West Kowloon. The plaintiff claims that he has rescinded the tenancy on the ground that he entered into it in reliance of the defendant’s misrepresentation. He also seeks damages for misrepresentation and for breach of tenancy agreement. The defendant however counterclaims for damages for the plaintiff’s breach of the tenancy.

The plaintiff’s case

2. The plaintiff pleaded in the re-amended statement of claim that before he entered into the formal tenancy dated 4 March 2010 (“the Tenancy”), he was shown the workshop twice by a Mr Lin of the defendant.  He clarified in oral evidence that this person was Lin Junior, the son of the Mr Lin (“Lin Senior”) who was in control of the defendant. 

3. Lin Junior also represented to him that:

(i)  the workshop could be used for the purpose of running a food and drink business (“F & B business”); and

(ii)  the last tenant of the workshop had used the workshop for an F & B business.

Lin Junior, in order to support his misrepresentations, showed him the workshop on the two occasions which were between the end of January and early March 2010.  The conditions of the workshop as shown to him demonstrated that it had been used as a canteen. 

4. The plaintiff then pleaded that the said representations and the viewing of the workshop as presented to him by Lin Junior served as the defendant’s representations and/or warranties that the workshop had been used by previous tenants for F & B businesses, the applications of the previous tenants to the Food and Environmental Hygiene Department (“FEHD”) for F & B business licences were successful and the workshop in the existing state as shown to the plaintiff could be used lawfully for F & B business pending an application to FEHD for a licence.

5. In reliance of the representations and/or warranties, the plaintiff entered into the Tenancy with the defendant on 4 March 2010 for three years commencing 1 April 2010.

6. The plaintiff further pleaded that the representations and/or warranties were false in that the government grant of the lot of which the workshop formed part restricted the user to general industrial purposes only.  If the government grant was not observed, the government could

7. The plaintiff further pleaded that the defendant made the representations and/or warranties fraudulently knowing the same to be false.  Alternatively, the defendant made the said representations recklessly or negligently in that the defendant had no reasonable ground to believe in the assertions it made.

8. Further or alternatively, the Tenancy provided that the user of the workshop was “for commercial purpose only” and that was consistent with its use as a canteen.  The plaintiff’s application for a canteen licence was however rejected by the FEHD on 6 May 2010 on the sole ground that the proposed use for a canteen was contrary to the restriction on user.  The workshop therefore could not be used lawfully for the express and only purpose for which it was let by the defendant to the plaintiff under the Tenancy. The defendant was therefore in repudiatory breach of the Tenancy and the repudiation was accepted by the plaintiff by a letter dated 6 August 2010. Alternatively, the plaintiff upon discovery of the true facts rescinded the Tenancy by the said letter of 6 August. 

9. The plaintiff then claims damages for the defendant’s repudiation of the Tenancy or damages for misrepresentations.

The defendant’s case

10. The defendant defends the claim and also counterclaims against the plaintiff for breach of the Tenancy in failing to pay rent at HK$22,000 per month from 1 June 2010, rates from 1 October 2010 and management fees from 1 September 2010 until 24 December 2010 when the defendant accepted the plaintiff’s repudiation of the Tenancy.

11. The defendant admitted that the workshop was subject to the user restriction as pleaded in the re-amended statement of claim but denied having made any misrepresentations and/or warranties as alleged by the plaintiff.

12. The defendant referred to the history of the workshop. It purchased the workshop on 21 March 2000.  It applied to the District Land Officer, Kowloon West (“DLO”) for a temporary waiver of the user restriction so that he could use the workshop for running a canteen.  The DLO approved the application on about 26 November 2002 subject to payment of an administrative fee of HK$22,100.  The defendant paid the fee but did not complete the documentation for the waiver.  Lin Senior explained in oral evidence that he did not complete the documentation for the defendant because the then tenant had already left the workshop.  The new tenant might run a different business and require a different waiver.  Hence, he did not follow up with the documentation for that waiver.

13. Though the defendant denied the alleged representations and warranties, it agreed that the workshop was to be let together with some fixtures and equipment including stoves, ovens, refrigerators, cooking utensils, air-conditioning and other fittings for running an F & B business.  A premium had also to be paid by the tenant to the defendant for their use.

14. The defendant further pleaded that there was a meeting between the plaintiff and Lin Senior on about 10 February 2010 wherein the plaintiff held himself out to be experienced in running F & B business.  The plaintiff further negotiated with Lin Senior on the amount of premium to be paid for the use of the said fixtures and equipment.

15. By reason of the previous successful application for waiver in 2002, the defendant was confident that it could obtain a waiver from the DLO for the workshop.  Lin Senior therefore told the plaintiff in this meeting that the defendant had already made payment to the government in respect of an application for waiver of the user restriction of the workshop and the defendant would assist the plaintiff in applying for the waiver if necessary.  He also told the plaintiff that the previous tenant had run an F & B business at the workshop.  The parties then entered into a provisional tenancy on the same day and the plaintiff paid the defendant a deposit of HK$5,000. The parties further entered into the Tenancy on 4 March 2010 for three years commencing 1 April 2010 at HK$22,000 per month.

16. The defendant’s case is that there was no misrepresentation or warranty and the plaintiff knew of the user restriction of which the defendant said that it was willing to apply to the DLO for a waiver.

17. The defendant further pleaded that the plaintiff had not rescinded the Tenancy upon learning of the rejection of his application for a canteen licence by the FEDH on 6 May 2010 because of the user restriction. He instead instructed his consultant W&T Artwork and Design Consultant Company (“W&T”) on about 10 May to procure the defendant to sign a letter for an application for waiver of the user restriction from the DLO and to procure the defendant’s execution of documents for such an application which included an authorisation to W&T to act for the defendant.  The plaintiff further instructed the defendant to make the application for waiver on about 21 July 2010.  The plaintiff also incurred costs and expenses in setting up the canteen after knowing about the user restriction.  The defendant therefore pleads an alternative defence that even if the defendant should have made the alleged misrepresentations or warranties prior to the making of the Tenancy on 4 March, the plaintiff had, after learning of the true situation on about 6 May 2010, taken actions which affirmed the Tenancy.  The defendant further denied any breach of the Tenancy.

18. However, the plaintiff had defaulted in paying rent since 1 June, rates since 1 October and management fees since 1 September.  The plaintiff through his solicitors further sought to rescind the Tenancy by a letter dated 21 October 2010 by returning the keys of the workshop to the defendant.  The defendant therefore counterclaims that it was entitled to forfeit the plaintiff’s deposit of HK$66,000, be paid the balance of rental in arrears, rates and management fees up to 24 December 2010 at HK$92,985 and damages for breach of Tenancy.  In fact, the defendant re-let the workshop to another tenant on 24 December 2010 and the damages recoverable only accrued up to 23 December.  The balance of such damages’ net of the deposit of HK$66,000 is at HK$92,186.

The plaintiff’s reply

19. The plaintiff in the re-amended reply further referred to a signboard put up at the workshop by estate agents saying that the workshop was suitable for F & B business.  The estate agent also confirmed the content on the signboard upon the plaintiff’s enquiry.  However, these matters should have been pleaded in the statement of claim.

20. The plaintiff denied that the defendant had provided him with any information about any previous application for waiver of the user restriction.  The plaintiff also denied that he had instructed W&T to apply to the DLO for waiver of the user restriction or had requested the defendant to assist him to do so.  He also denied that he had incurred costs and expenses in setting up the canteen business after having learnt in early May 2010 that no waiver had been granted by the DLO.

The plaintiff’s evidence

21. The plaintiff’s evidence in his witness statement followed his pleadings.  He said Lin Junior allowed him to inspect the workshop on 21 January where he saw the decoration and fittings which were for use of an F & B business.  He also saw a kitchen, cooking utensil, dishes, plates, tables and chairs.  Lin Junior told him that the previous tenant had run an F & B business there.  He told Lin Junior that he intended to carry on an F & B business there.  He negotiated with Lin Senior on the phone who promised to assist him in applying for a canteen licence from the FEHD.  The parties then signed a provisional tenancy on 10 February.

22. On 3 March, he, his head-chef and his consultant for obtaining the canteen licence, one Mr Wong of W&T inspected the workshop again.  Wong advised him that the partitioning and fire safety installation were in compliance with the rules and regulations for obtaining a canteen licence from the FEHD. 

23. He then signed the Tenancy with the defendant on 4 March at a solicitor’s office.

24. He was given the keys to the workshop at the beginning of April and started with the decoration work and the purchase of the necessary equipment and utensil.  He also prepared to apply for a canteen licence from the relevant government departments.

25. On 13 April, W&T submitted his application for a canteen licence to the FEHD.

26. On 10 May, he and Wong attended a meeting at FEHD.  The meeting was also attended to by the representatives of the Fire Service Department, the Buildings Department and the DLO.  His application was opposed by the DLO because of the user restriction.  Hence, FEHD rejected his application.  He later learnt from the DLO that the defendant should obtain a waiver of the user restriction before he could request the FEHD to reconsider his application for licence.

27. He then contacted Lin .  They discussed on how to resolve the problem.  Lin Senior said the defendant had already applied for the waiver and paid the necessary fees.

28. He then enquired with the office of the DLO and learnt that the defendant had indeed applied for the waiver and paid the necessary fees in 2002 to 2003, however it did not follow up with the application which was cancelled for over three years.

29. Despite not being given the canteen licence, the plaintiff continued to operate a canteen in the workshop hoping that the DLO would issue him with a temporary waiver for the canteen to operate there.  He then repeatedly asked Lin Senior on the progress of the defendant’s application for waiver, but was not given any direct reply.  Lin Senior also avoided meeting him and was unco-operative.  On 19 July, he demanded compensation from the defendant.  There was then a meeting between him and Lin Senior, but their difference was not resolved.

30. Since he had no canteen licence, the staff of FEHD had repeatedly warned him and told him to stop the business, failing which he would be prosecuted by summons.  He had no choice but eventually had to stop the business on 13 August 2010.  He also gave the defendant notice on 6 August that his business would stop on 13 August.

31. He made a supplemental witness statement in which he said he had operated a fast food vehicle and fast food shop before, but had no experience in running a canteen.

32. He made a 2nd supplemental witness statement and said he had told Wong of W&T to contact Lin Senior to find out why the defendant had not applied for the waiver of user restriction, but he did not know that W&T had provided service to the defendant in applying for the waiver subsequently.

33. In oral evidence, he made it clear that Lin Junior, when showing him the workshop, did not tell him that the workshop could be used for running an F & B business.  This contradicted his pleading of misrepresentation in the re-amended statement of claim.

34. When cross-examined, he denied of knowledge that the workshop was in an industrial building.  He instead asserted that the building was with glass curtain wall and looked like a commercial building.

35. He was adamant that when he signed the Tenancy at the solicitor’s office, he did not know about the need for a waiver.  He also denied that Wong of W&T had told him the need for a waiver.  He said he only learnt about it from Wong after the meeting at FEHD on 10 May.  He then told Lin Senior to apply for the waiver from the DLO.  In any event, he had to start his canteen on 13 May as he had everything ready and had also employed the staff.

36. He then repeatedly asked Lin Senior for information on the progress of the application for waiver, but was not told of when the waiver would be approved.  He asked Lin Senior to waive or reduce the rent pending the application for waiver, but Lin Senior refused.  He therefore rescinded the Tenancy.  He agreed in oral evidence that if Lin Senior should have agreed to waive or reduce the rental pending the waiver application, he would have continued with the Tenancy.

The defendant’s evidence

37. Lin Senior also repeated in his witness statement the matters pleaded in the re-amended defence and counterclaim.  He agreed that the three previous tenants of the workshop had all operated an F & B business there.  He agreed that when the workshop was shown to the plaintiff, there were the fixtures and equipment left behind by the previous tenants which were for use in an F & B business.  He agreed that his son had shown the workshop to the plaintiff twice in December 2009 and January 2010.  He had also spoken to the plaintiff over the phone after the plaintiff had made his second visit.  They discussed and agreed that the amount of rent should be at HK$22,000 per month and the premium for the fixtures and equipment at HK$30,000.  They then made an appointment to sign the provisional tenancy on 10 February.

38. From the telephone conversation and meeting, Lin Senior found that the plaintiff was very experienced in F & B business and he did not trouble the plaintiff with the legal requirements for the waiver as he assumed that the plaintiff was aware of it.  But he did tell the plaintiff that the defendant had previously made payment to the DLO for an application of a factory canteen waiver.  He also told the plaintiff that he would render the plaintiff all assistance in the application for waiver from the DLO.

39. Regarding the signboard put up by an estate agent as referred to in the re-amended reply, he said he had given permission for the board to be put up but did not know about the contents in the board.

40. After the signing of the Tenancy, the plaintiff set up a canteen business at the workshop.  In about May 2010, the plaintiff requested him to apply for a waiver from the DLO and told him to liaise with Wong of W&T for the application.  He discussed the matter with Wong and was told that the application would take about three months to complete.  However, the plaintiff did not wait for the grant of the waiver and stopped paying rent from 1 June 2010.  His demands for rent were to no avail.

41. In July, the plaintiff told him about warnings from officers of FEHD that there might be penalty for the operation of the canteen without licence.  The plaintiff also asked him to reduce the rent which he refused.

42. The plaintiff by a Chinese letter dated 19 July 2010 alleged for the first time that he had entered into the Tenancy by misrepresentation and sought to terminate it with compensation from the defendant.  He met the plaintiff on 3 August and was told that business of the canteen was poor.  But he declined the plaintiff’s request for rent reduction.

43. The plaintiff then gave him another letter dated 6 August 2010 saying that the canteen would be closed down on 13 August 2010. Apart from not paying rent, the plaintiff also defaulted in management fees since 1 September and rates and government rent since 1 October.  The defendant through solicitors demanded the arrears of rent, rates and management fees on 13 October, but the plaintiff through his solicitors returned the keys on 21 October.

44. He later received from Wong of W&T a copy of a letter dated 18 August 2010 from the DLO which required some works to be done before granting the waiver.

45. He made a supplemental statement and elaborated on the application for waiver that Wong had made for the defendant.  He said after he had spoken to Wong as per the plaintiff’s suggestion, he received some documents from Wong on about 10 May.  These documents were for the defendant’s authorisation to W&T to apply for the waiver and the papers for the application.  Wong told him that the application was made on the plaintiff’s instruction but he required co-operation of the landlord to do so.  He then signed the papers, applied the defendant’s chop on them and returned them to Wong on about 10 June.  He also paid W&T HK$6,500 as the fees for the application.  He remembered that there was once a dispute on whether the plaintiff should pay this sum.  However, he eventually agreed to pay it as the defendant would benefit from the waiver.

46. He also said in cross-examination that waiver was trade specific.  He would not have applied for waiver without a tenant. For the application made through W&T, it was made in respect of the plaintiff’s canteen with the use of the plaintiff’s decoration floor plans.

47. Lin Junior also gave evidence.  He said he had only opened the workshop for the plaintiff’s inspection.  He did not tell the plaintiff that the previous tenant had operated an F & B business there, but agreed that the fixtures and equipment there showed that the workshop had been used for such purpose.  He also told the plaintiff that all the fixtures and equipment to be let with the workshop were shown inside the workshop.

The evidence of Wong of W & T

48. Wong of W&T was subpoenaed by the defendant to give evidence.  He declined to provide a witness statement.  He said in oral evidence that the plaintiff had contacted him in February 2010 to prepare for the running of a canteen in the workshop. 

49. He went to the workshop on 3 March for the first time with the plaintiff to see if it could be used for a canteen before the signing of the Tenancy by the plaintiff on the next day.  He found that the workshop was in an industrial building.  He told the plaintiff that the landlord had to apply to the DLO for change of user before the workshop could be used for the running of an eating place.  The plaintiff said he would discuss the matter with the landlord.  Sometime before 9 April, the plaintiff phoned him and told him the landlord’s advice that premium had already been paid to the DLO.  He then went to the workshop to measure the dimensions and drew some decoration plans.  He then submitted the plaintiff’s application together with the plans to FEHD for a canteen licence.

50. He accompanied the plaintiff to a meeting at FEHD on 10 May.  They were told at the meeting that the plaintiff’s application was not allowed because the defendant had not paid any premium for change of user of the workshop.  They were told to arrange payment of the premium and apply again.  He was also given a letter dated 6 May and he later made a copy of it for the plaintiff.

51. He asked the plaintiff why the plaintiff had previously said that the landlord had paid the premium.  The plaintiff then phoned and enquired the landlord, but the landlord still maintained that the premium had been paid.  He then phoned the DLO’s office to enquire and was told that the defendant’s previous application for change of user had lapsed despite payment of the required premium as the defendant had failed to complete the documentation.  He then relayed this to the plaintiff.

52. The plaintiff later told him on the phone that Lin Senior of the defendant would ask him to apply for change of user for the workshop and pay the premium again.  The plaintiff told him to make the papers ready for the defendant’s application.  He then prepared an authorisation letter to be signed by the defendant to authorise W&T to apply for the waiver for the defendant and the application papers.  When the plaintiff told him to prepare the papers, he was not yet acquainted with Lin Senior.

53. Lin Senior later signed the papers for the defendant and he submitted the defendant’s application to the DLO on 21 July together with the plaintiff’s decoration plans that he had previously made.

54. He also told the court that he could not tell how soon the application would take though it could take three to four months. He however maintained that he had not advised the plaintiff or the defendant the period required for the application to be processed.

55. The DLO replied to him by letter of 18 August which imposed a number of criteria to be observed by the defendant before the waiver would be given.

56. However, he had learnt by that time that the plaintiff was no longer operating at the workshop and was looking for another venue for operation.  Since the decoration plans used in the application were the plaintiff’s and the new tenant of the workshop might not be in the same trade, he therefore did not follow up on the reply from the DLO.  He also did not copy the letter to Lin Senior immediately but advised Lin Senior on the phone the reason for not following up with the application.

Analyses and findings

57. There is no question that the workshop had previously been used for F & B businesses and the plaintiff learnt about this when the defendant showed the workshop to him.  There were also the fittings and equipment for such business in the workshop when the plaintiff inspected it.  The plaintiff also had to pay HK$30,000 premium for the right to use them.  The defendant was fully aware that the plaintiff was going to let the workshop for a canteen business.  The Tenancy also stated the permitted use as commercial.  That tallied with the running of a canteen business.

58. The plaintiff’s case is that he did not know that a waiver of the user restriction in the land grant was required from the DLO before he could run a canteen business in the workshop even after he had signed the Tenancy on 4 March.

59. He pleaded in his re-amended statement of claim that Lin Junior had misrepresented to him that the workshop could be used for running a canteen.  He further relied on Lin Junior’s misrepresentation and the fact that the previous tenant had run such a business there with the fittings and equipment for the business.  He also had to pay a premium to the defendant for the right to use them.  He put all these together and said that they amounted to the defendant’s misrepresentations and/or warranties that he could lawfully use the workshop for an F & B business pending his application to FEHD for licence and he entered into the Tenancy with the defendant in reliance of these misrepresentations and/or warranties.

60. However, the misrepresentations and/or warranties were false in that there was the user restriction in the land grant which he did not know even after he had signed the Tenancy.  His application to FEHD for a canteen licence was also rejected on the sole ground of this user restriction.

61. Nevertheless, if I should accept Wong’s evidence that Wong had told him on 3 March that the landlord had to obtain a change of user from the DLO before the workshop could be used for a canteen, that means there was no misrepresentation by the defendant to him or that the misrepresentation had no effect on him since he was aware of the existence of the user restriction before he signed the Tenancy though Lin Senior had wrongly told him that the fees for a waiver had been paid to the DLO.

62. His case is not that he had been misrepresented that there was already a waiver of the restriction when in fact there was none.  His case is that he was misrepresented that he only needed a canteen licence from FEHD and no more and he was not aware of the user restriction which flouted his application for the canteen licence.

63. Even if he should have pleaded a misrepresentation that there was a waiver of the restriction when there was none, the defendant might also plead affirmation of the Tenancy by him after he had learnt of the truth of the matter.  His conduct of affirmation is his commencement or continuation, if he had already commenced, with the canteen business and his asking Wong on behalf of the defendant or Lin Senior to prepare the papers for the defendant’s application for waiver.

64. However, his only pleaded case is the defendant’s misrepresentation that there was no user restriction.  I therefore need not consider the issue of Lin Senior’s mistaken belief that there was a waiver when there was none or that no further payment was needed for a waiver application when a fresh payment was needed or whether the plaintiff had affirmed the Tenancy after learning of the defendant’s mistake.

65. The plaintiff’s counsel submitted that I should not accept Wong’s evidence.  Counsel said Wong’s version of events should be assessed with the defendant’s version.  The defendant’s case is that Lin Senior had on 10 February told the plaintiff that payment had already been made to the DLO for an application of a factory canteen waiver.  Wong however said that after he had told the plaintiff on 3 March that the landlord had to apply for change of user, the plaintiff at sometime before 9 April phoned him and relayed the landlord’s advice that the premium had already been paid for the change of user.

66. Counsel for the plaintiff submitted that had Lin Senior told the plaintiff on 10 February that payment had already been made to the DLO for an application for a factory canteen waiver, the plaintiff would have told Wong on 3 March that the landlord had already made the payment for the change of user.  The plaintiff would not have to enquire with Lin Senior and then relay the answer to Wong sometime before 9 April.

67. I suppose counsel made this submission to persuade me to disbelieve Lin Senior because his evidence does not seem to live comfortably with that of Wong.  However, if I should accept Wong’s evidence and reject that of Lin Senior, then the plaintiff’s case will still be defeated as Wong’s evidence shows that the plaintiff had not been misled because Wong had already told him the user restriction on the workshop before he signed the Tenancy on 4 March.

68. I further observe that even if Lin Senior had told the plaintiff on 10 February that payment had already been made for the canteen waiver, it is not surprising for the plaintiff to enquire with the defendant again when the matter was raised by Wong.  I do think the evidence of Wong and Lin Senior really cannot live together. 

69. Counsel further submitted that if Wong was telling the truth, then the defendant should have pleaded that someone of the defendant had before 9 April told the plaintiff that payment had already been made to the DLO in an application for a factory canteen waiver.  But the defendant had not so pleaded and this suggests that Wong was not truthful on this.

70. I however do not see the strength of this submission.  The important point for the defendant to establish is the plaintiff’s knowledge of the user restriction before he had entered into the Tenancy on 4 March, not sometime after 3 March and before 9 April.

71. Counsel further attacked Wong’s evidence by submitting that if Wong had told the plaintiff that a DLO waiver was required for running a canteen, then the plaintiff would not have invested in the workshop.  I again do not accept this submission.  Wong did not say that the canteen could not be operated in the workshop.  He only said that the landlord had to apply for change of user.  This submission also ignored the evidence of Lin Senior that he had told the plaintiff on 10 February that the defendant had already paid the premium for the waiver.  This evidence also tallied with Wong’s evidence.  Wong said that the plaintiff had told him the same thing at sometime before 9 April.  There is also the indisputable fact of payment by the defendant in 2002 of the fees required for the earlier waiver application and Wong’s evidence that he had been advised by the DLO’s office that such payment for waiver need not be made more than once.  The only thing that both Wong and Lin Senior did not know was that the previous application had been rejected despite payment because the defendant did not complete the necessary documentation.

72. Counsel further attacked Wong’s evidence by submitting that he should not have advised the plaintiff about the need for change of user without making enquiry with the DLO as the user might have been changed and restriction already waived.  He could only have been sure about the need for change of user after checking with the DLO.  I however reject this submission.  I do not think it unreasonable for Wong to have so advised the plaintiff when he saw that the workshop was in an industrial building.  Prima facie, a workshop in an industrial building is to be used for industrial purpose and not to be used as a canteen.  It was prudent for Wong to have so advised the plaintiff.  Wong’s evidence was that the plaintiff responded to his advice by saying that he would enquire with the landlord.  I can see nothing extraordinary in this piece of evidence that would cast doubt on its truthfulness.

73. Counsel further submitted that there were business operations in the units adjacent to the workshop which were not industrial operations.  Counsel therefore submitted that Wong had no basis to take the building as an industrial building.  Therefore, Wong should not have advised the plaintiff on 3 March that a waiver was need.  However, this submission overlooked the undisputed fact that the building was indeed an industrial building and Wong was correct in coming to that view.  Therefore, he had good reason to advise the plaintiff on the need of a waiver.

74. Counsel also recommended the plaintiff’s evidence to me.  However, there are aspects of the plaintiff’s evidence that are problematic.  He said Wong did not advise him on 3 March of the need for a waiver for the workshop to be used as a canteen.  However, Wong is a consultant in application for licence for industrial building canteen (see para 8 of the plaintiff’s first witness payment).  He obviously knew that a waiver was required for running a canteen in an industrial building.  He also said that he went to the workshop on 3 March with the plaintiff for the purpose of ascertaining whether the workshop could be used for running a canteen before the signing of the Tenancy by the plaintiff on 4 March.

75. I therefore cannot imagine why Wong would have failed or refrained from telling the plaintiff the need for a waiver before he was to sign the Tenancy.

76. The plaintiff also said that despite being told at the meeting with FEHD on 10 May that his application for a canteen licence was unsuccessful, he still commenced on 13 May and continued with the operation of the canteen hoping that the DLO would grant a temporary waiver for the canteen.  He then repeatedly asked Lin Senior on the progress of the application, but Lin Senior did not give him any direct reply and was un-cooperative.  On the other hand, he was adamant that he was unaware that W&T had submitted for the defendant to the DLO the application for waiver.

77. However, it is undisputed that W&T had, after the meeting on 10 May, applied on behalf of the defendant to the DLO for the waiver.  In fact, the plaintiff had admitted in oral evidence that after the meeting on 10 May, he had asked Wong to approach Lin Senior to discuss how to solve the user restriction problem.

78. I therefore cannot see why either Wong or Lin Senior should have kept this application by Wong for the defendant as a secret from the plaintiff.  It is of course Wong’s evidence that it was the plaintiff who introduced Lin Senior to him and asked him to prepare the papers for the defendant’s application.

79. The plaintiff has also denied Lin Senior’s evidence of having told him that the defendant had previously paid the premium for a waiver.  I however cannot see why Lin Senior should have kept that information from him.  The previous application was a successful one and the waiver would have been granted but for the defendant’s failure to complete the documentation.

80. The plaintiff’s counsel further submitted that the plaintiff had no intention of running a canteen business contrary to the user restriction.  He therefore would not have agreed to enter into the provisional tenancy and paid the deposit had he known that a waiver was required before he could run a canteen at the workshop.  However, the plaintiff’s case is that he had entered into the Tenancy in reliance of the defendant’s misrepresentation. His case is not that he had relied on the misrepresentation in entering into the provisional tenancy.  In any case, the defendant is not suggesting that the plaintiff intended to run a canteen there without a waiver.  The defendant’s case is that Lin Senior would assist the plaintiff to run the business lawfully by obtaining a waiver and he mistakenly thought that the premium for the waiver had already been paid.  When it turned out that a fresh application for waiver had to be made, the defendant did make it and the DLO was prepared to grant it subject to certain conditions and a payment of administrative fee.  The application was not pursued only because the plaintiff had by then left the premises.

81. The plaintiff’s counsel also submitted that whilst the Tenancy restricted the plaintiff to put the workshop to commercial purposes including that of a canteen, the workshop could only be used for industrial purpose.  That means the workshop could not be used for the purpose prescribed by the Tenancy.  However, if the plaintiff was aware of the user restriction when he entered into the Tenancy, then the plaintiff can have no complaint about this.

82. The plaintiff’s counsel also referred to the occupation permit which described the workshop as a “workshop”.  Counsel therefore submitted that the defendant would be in breach of the occupation permit if the workshop should be used for a canteen.  However, the undisputed evidence is that once a waiver is granted by the DLO, the workshop could be used for a canteen lawfully.  The Building Department which issued the occupation permit never objected to the running of a canteen there.

83. The plaintiff’s counsel further submitted that the plaintiff had not affirmed the Tenancy after knowing about the need for the waiver from the meeting at FEHD on 10 May.  Counsel cited Lawrence v Lexcourt Holdings Ltd [1978] 1 WLR 1128 and submitted that the leasee who still remained in possession of the premises when negotiating for a new lease was held not to have affirmed the original lease.  Nevertheless, on the evidence of Wong, what the plaintiff did after the meeting at FEHD was not to negotiate for a new tenancy but to relay the defendant’s instructions to Wong to apply for waiver from the DLO so that the plaintiff could obtain a licence from FEHD and continue to operate at the workshop.  If the defendant’s application should have been rejected by the DLO so that no licence could be obtained by the plaintiff from FEHD, the plaintiff might then have a claim against the defendant, but the plaintiff had left the workshop before the result of the application was known.

84. The plaintiff also referred in his reply to a signboard put up by estate agents which described the workshop as suitable for use of an F & B business.  I have already observed that this averment should be in the statement of claim.  In any case, if the plaintiff was aware of the user restriction and the need for a waiver before entering into the Tenancy, the signboard is also irrelevant.

85. I now consider whether Wong’s evidence is reliable.  He was initially the plaintiff’s consultant.  He was not known to the defendant.  He said he was only introduced to the defendant by the plaintiff. No one suggests that he has any interest in the outcome of this action.  He is really an independent witness.  He has not given any witness statement for either side.  He gave evidence as the defendant’s witness because of a subpoena served by the defendant on him.  The idea of serving a subpoena on him to require him to produce documents and to give oral evidence also initially came from the court.  His evidence was straightforward and reasonable.  He answered all questions readily and comprehensively.  There are indeed a few minor areas where he differed from Lin Senior.  These are however minor matters and not matters of core importance.  Such minor discrepancies do not cause me to doubt the veracity of Wong.  This is particularly so when the matters have happened in the first half of 2010.

86. I also find the evidence of Lin Senior truthful and straightforward.  His case of the previous application for waiver is supported by contemporaneous documents from the DLO.

87. The evidence of Lin Junior is not really in dispute.  The plaintiff in his oral evidence clearly said that Lin Junior did not represent to him that the workshop could be used for a canteen.  That was of course contrary to his pleadings.

88. On the whole, I accept the evidence of Wong and the Lins and reject that of the plaintiff insofar as he differed from them.

89. I find that the plaintiff was fully aware of the user restriction and the need for a waiver from the restriction before he could operate a canteen at the workshop.  I find that he was aware of this before he entered into the provisional tenancy dated 10 February.  He was also expressly advised of this by Wong on 3 March before he entered into the Tenancy on 4 March.  He had not relied on any alleged misrepresentation when entering into the Tenancy dated 4 March.  I therefore reject his claim as based on alleged misrepresentations by the defendant.  I also hold that he had repudiated the Tenancy in failing to pay rent since 1 June 2010 and the repudiation had been accepted by the defendant through the letter of its solicitors dated 24 December 2010.

90. There is no dispute that he had not paid rent, management fees, rates and government rent as claimed by the defendant.  The amounts outstanding are:

(a)	Arrears of rent from 1 June 2010 to 23 December 2010 (HK$22,000 x 6 and 23/31 months)	HK$148,332.58
(b)	Arrears of rates and government rent from 1 October 2010 to 23 December 2010 (HK$3,591 x 84/92 days)	HK$3,278.74
(c)	Arrears of management fees from 1 September 2010 to 23 December 2010 (HK$1,758 x 3 and 23/31 months)	HK$6,578.32
	Total:	HK$158,189.64
		============

91. The plaintiff has paid the defendant a deposit of HK$66,000.  After setting off the deposit, the amount due from the plaintiff is HK$92,186.

Decision

92. I therefore dismiss the plaintiff’s claim.  I further declare that the defendant is entitled to deduct the deposit of HK$66,000 for the arrears of rent, rates, government rent and management fees.

93. I further order the plaintiff to pay the defendant the balance at HK$92,186 with interest at the judgment rate from 24 December 2010 to the date hereof. 

94. I also make a costs order nisi ordering the plaintiff to pay the defendant the costs of this action including the counterclaim to be taxed at the High Court Scale as the plaintiff has dragged the defendant to the High Court and should pay at the that scale.