YU KWOK FU v. CITY MOTION CO LTD

DCCJ 5108/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5108 OF 2004

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JUDGMENT

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Introduction

1. The plaintiff as tenant entered into a tenancy agreement for a shop premises with the defendant as landlord through an estate agent for a fixed term of 2 years.  The plaintiff carried out renovation works and used the premises as a café illegally until 6 months later, when his application for a café licence was refused by the government due to the presence of unauthorized structures on the premises.  Two of the unauthorized structures were his own works whereas the others were the defendant’s works.  No actual remedial steps were taken by either him or the defendant.  After less than a year, he ceased business and terminated the tenancy agreement.  He asked for the return of deposit and the wasted costs of construction works.  The defendant refused to give in and counterclaimed rent and damages for the remainder of the 2-year term.             

The plaintiff’s case

2. The plaintiff’s case is that the estate agent was the defendant’s agent in orally misrepresenting to the plaintiff that there were no unauthorized structures in existence and the defendant guaranteed that the plaintiff would get a café licence from all relevant government departments.  The plaintiff himself and his elder brother are witnesses.   

The defendant’s case

3. The defendant’s case is that it had never, whether through the estate agent or otherwise, represented that there were no unauthorized structures in existence or guaranteed that the plaintiff would get a café licence.  The estate agent had reminded the plaintiff to get a licensing agent to apply for a café licence.  The plaintiff took his own people to view the premises before entering into the tenancy agreement.  The estate agent and the defendant’s secretary are witnesses. 

The issues to be determined

4. To establish a case of misrepresentation, the plaintiff has to prove:

(1)   the estate agent had made an oral representation;

(2)   the representation was false;

(3)   the estate agent had authority to make it for and on behalf of the defendant;

(4)   the plaintiff was induced by it to enter into the tenancy agreement;

(5)   the plaintiff suffered loss as a result.

5. To establish a case of breach of implied term of the agreement, the defendant has to prove:

(1)  the existence and contents of implied terms;

(2)  the defendant’s breach;

(3)  the plaintiff’s rescission;

(4)  the plaintiff suffered loss as a result.

6. If the defendant fails in the aforesaid, the defendant will succeed in his counterclaim. 

The facts

7. By a provisional tenancy agreement dated 16 July 2003 (“the Provisional Agreement”), the plaintiff as tenant and the defendant as landlord entered into a tenancy for the property known as Ground Floor and Cockloft, 15 Western Street, Hong Kong (“the Premises”).  The rent was $7,500 per month for a fixed term of 2 years.  The plaintiff paid a rental deposit of $15,000, which would be returned to the plaintiff at the end of the tenancy period, namely 22 August 2005.  Later on, the parties signed a formal tenancy agreement dated 25 July 2003 (“the Formal Agreement”). 

8. In May and June 2003, the plaintiff planned to open a café.  He viewed various premises.  In June or July 2003, he went to Wui Fat Property Agency (“the Property Agency”) to enquire about the Premises.  Ms. Mickey Fong (“Fong”), who is DW1 in court, had the keys and showed him the Premises.  In the course of the viewing, the plaintiff expressed that he was going to open a café.  He told Fong that illegal structures would affect his application for a café licence from the government departments.  Fong told him that the Premises had undergone renovation works for the removal of certain unauthorized structures beforehand.  Fong rang up Ms. Leung Siu-fong (“Leung”), who was the defendant’s secretary and is DW2 in court, for proof.  Leung faxed a copy of Buildings Department’s letter dated 4 September 2002 (C41) to Fong.  Fong showed it to the plaintiff.  In total, the plaintiff viewed the Premises 3 times with his own people before signing the Provisional Agreement. 

9. The plaintiff engaged contractors to renovate the Premises.  The business registration of the café was in the name of the defendant’s elder brother, Yu Kwok-man, who is PW2 in court, for convenience sake.  Yu Kwok-man commenced to apply for a café licence from the government.  On 5 September 2003, the café commenced business illegally because it had no licence.  The plaintiff had no complaint about the Premises at all until after 5 March 2004.  On a day after 5 March 2004, the plaintiff received a letter from FEHD (C90, “the FEHD letter”).  It set out grounds in refusal of the licence application, such grounds including an objection by the Buildings Department due to the presence of unauthorized structures in the Premises, namely:

(1)   Shopfront signbox projection over the pavement;

(2)   Metal frames supporting air conditioner split units over the flat roof of approved lavatory at the yard;

(3)   Removal of approved circulation staircase leading to the cockloft;

(4)   Door swinging over the service lane. 

10. Both the plaintiff and the defendant accept that items (1) and (2) were the plaintiff’s works whereas items (3) and (4) were the defendant’s works.  The plaintiff contacted Fong, who in turn contacted Leung.  Meetings were held between the plaintiff and Leung, sometimes also with FEHD and Buildings Department representatives. 

11. By a letter dated 9 June 2004 (C132), the Buildings Department wrote to the plaintiff to suggest a voluntary demolition of authorized building works in:

(1)  The front void of the cockloft;

(2)  The rear void of the cockloft;

(3)  The rear yard at G/F.

12. No actual remedial steps were taken by either the plaintiff or the defendant.  The parties’ solicitors wrote to put forward their claims and counterclaims.  The plaintiff alleged that the defendant had through Fong misrepresented that there were no unauthorized structures in existence and that the defendant had guaranteed that the plaintiff would get a café licence from all relevant government departments.  The Premises were rented out in September 2005, also at $7,500 per month.   

Evidence put forward by the plaintiff

On Misrepresentation

11. As seen from FEHD’s letter (C90) and accepted by the plaintiff’s solicitor in court, a café licence application had to go through 3 departments, namely FEHD, Buildings Department, and Fire Services Department.  Quite apart from Fong’s being a professional estate agent, I do not think any right-minded lay person would give this guarantee.  Take the instance of the Fire Services Department’s consent.  The plaintiff’s solicitor accepts in Court that there were stringent statutory requirements for fire service setup, including the exact dimensions.  At that time, the plaintiff himself had only very sketchy ideas about the design of the kitchen and other parts of the café.  It was impossible that Fong or the defendant could have been known and guaranteed beforehand whatever setup, including the exact dimensions, that the plaintiff might implement.  The same applies to the requirements of the other departments.  I find the plaintiff ‘s allegation of such a guarantee incredible.

12. From another point of view, we all understand that the plaintiff was not prepared to engage a professional licensing agent.  He had to pay a lot of money and go by the licensing agent’s advice on the contraints.  He is now alleging that the defendant agreed to guarantee him a café licence free of charge and free of constraints.  I think that was too good to be true.  This allegation is untenable.    

13. Moreover, if the guarantee was such an important term, I cannot see any reason why it had not been written down on either or both of the Provisional and the Formal Agreements.  The same logic applies to the alleged oral representation that there were no unauthorized structures in existence. 

14. I find Fong’s evidence credible and reliable.  I do not find the plaintiff’s evidence credible.  I find as a fact that Fong had never made such a guarantee or oral representations.  It follows that the plaintiff’s case must fail under this heading. 

On Breach of implied terms

15. The plaintiff alleged that there were implied terms:

(1) That the defendant would do all that was necessary alternatively reasonably necessary as its part to enable the plaintiff to fulfill his obligations under the Formal Agreement;

(2) That the defendant would not do anything to prevent or impede that plaintiff from performance of the Formal Agreement;

(3) That the defendant would keep the Premises structurally safe and fit for occupation and free from any risk to public safety;

(4) That the plaintiff would have quiet enjoyment of the Premises as against the defendant. 

16. The plaintiff alleged that upon receiving FEHD’s refusal letter dated 9 June 2004, the plaintiff became aware of the breach, and as a result, could not continue with the business and suffered loss and damage.

17. The defendant alleged that the Premises was rented to the plaintiff on an “as-is” basis after the plaintiff’s repeated inspections.

18. I start with the general principle that all implied terms have to be based on the presumed intention of the parties (Chitty on Contract, 29^th ed., para. 13-004).  It in turn depends on what the defendant had known or ought to have known so as to form part of its intention.  The plaintiff is contending that as the defendant knew that the plaintiff was setting up a café, the defendant must have intended as implied terms:

(1)  That the defendant would do all that was necessary [namely to ensure that all the plaintiff’s future FEHD setup, fire services setup, and building works would be approved by the respective government departments] alternatively reasonably necessary as its part to enable the plaintiff to fulfill his obligations [to satisfy the said departments] under the Formal Agreement;

(2)  That the defendant would not do anything to prevent or impede the plaintiff from performance of the Formal Agreement;

(3)  That the defendant would keep the Premises structurally safe and fit for occupation and free from any risk to public safety [when operating as a café];

(4)  That the plaintiff would have quiet enjoyment of the Premises as against the defendant [when operating as a café]. 

19. I accept Fong’s evidence that the plaintiff took up the tenancy on an “as-is” basis.  I do not find any such implied terms in the Provisional or Formal Agreement.

20. Even assuming that there were such implied terms, the plaintiff had been operating the café continuously until its application for licence was refused.  I do not see how the plaintiff had been doing business, albeit illegal there, for 6 months without discovering, as for example, that it was not structurally safe, fit for occupation or risky to public safety, and it had to be reminded by FEHD’s letter of these fundamental problems.  Further, out of the 4 unauthorized structures, the plaintiff owned 2 of them.  He fails to prove that the defendant was solely, and he himself was not at all, responsible for the refusal of a café licence.  It follows that the plaintiff’s case must also fail under this heading. 

The plaintiff’s deposit

21. According to cl. 1 of the Formal Agreement (C55-57), the tenancy period was a fixed 2-year term with no break clause.  In case of early termination, the defendant was entitled to the rent for the remainder of the term.  The defendant claimed 13 months’ rent.  (The defendant’s counsel is aware that it should have been 14 months but content to leave it as such.)  The defendant can recover the sum of $97,500.  According to cl. 5 of the Formal Agreement, the defendant might apply the deposit of $15,000 to cover outstanding rent.  There is no clause allowing forfeiture of the rental deposit.  In this regard, the defendant had a shortfall of $80,000 after deduction.  The plaintiff has not pleaded or alleged any failure to mitigate on the part of the defendant.   

The Conclusion

22. The defendant shall apply the deposit of $15,000 toward satisfaction of the outstanding sum of $97,500.  Hence the plaintiff shall pay the sum of $80,000.  The defendant shall get interest at judgment rate from date of issue of the writ to actual payment.  I order costs nisi for both the Claim and the Counterclaim to the defendant to be made absolute in 14 days’ time unless either party applies to vary it.   

Dated this 14 November 2005