Shing Wei Enterprises Co. Ltd. v. Wu Hsiu Miam

DCCJ3033/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3033 OF 2001

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J U D G M E N T

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1. This is an application for summary judgment by the plaintiff against the defendant, its former tenant of certain factory premises on the second floor of an industrial building in Aberdeen.

2. The case of the plaintiff is that there was a written tenancy agreement between the parties dated 2 November 1998 for a fixed term of two years commencing from 1 November 1998 and expiring on 31 October 2000 at a monthly rental of $16,800. The plaintiff says that the defendant, in breach of the tenancy agreement which contained no break clause, unilaterally left and vacated the premises without the plaintiff's consent on 31 December 1999. The plaintiff recovered possession of the premises subsequently and now sues the defendant for the rentals for the rest of the term, management fees, rates and so forth, amounting to a total of $221,660, it being also the plaintiff's case that despite efforts, the plaintiff has not been able to re-let the premises, probably because of the current economic climate.

3. The pleaded defence of the defendant is that there was an agreement, the so-called surrender agreement, reached between the defendant and a Mr Sze of the plaintiff in mid-October 1999 whereby the parties agreed that the defendant would surrender the premises to the plaintiff by the end of the year, which was what the defendant did, and as a result, the defendant is not liable for the claim.

4. After summary judgment was applied for by the plaintiff, the defendant in her two affirmations filed in opposition to the application raised a further matter which gave rise to two additional defences now relied on by the defendant at this morning's hearing before me. The defendant alleged in her affirmations that, in fact, she had rented two units on the fourth floor of the same industrial building from the plaintiff. The first one was for a term of two years from 1 May 1997 to 30 April 1999. The second one was also for a term of two years from 1 January 1998 to 31 December 1999. But there had been an oral agreement reached between the parties for the extension of the term of the earlier tenancy on the fourth floor to end on 31 December 1999 for the purpose of coinciding with the term of the second tenancy relating to the second unit on the fourth floor. The defendant explained that she used both factory premises for her business.

5. As regards the subject tenancy in question, the defendant said that since she was on very good terms with a Mr Chan who had been acting on behalf of the plaintiff relating to the tenancy matters throughout, she had indeed agreed with Mr Chan when she negotiated for the renting of a further unit, i.e. the subject unit on the second floor from the plaintiff, that she would have all three units together or none at all. According to her affirmations, she had made it extremely clear to Mr Chan that she would not rent the second floor premises unless she could have the terms of the leases of the two units on the fourth floor and the second floor premises to run together. She said thereupon Mr Chan expressly reassured her that there would not be any problem for her to have the three leases terminating on the same day. Mr Chan explained to her that he was letting the second floor premises at a very low rate to her and it would not matter should the defendant later decide not to rent it as he could rent it out easily and at a much higher price. According to the defendant, it was upon the promise or assurance so made by Mr Chan that she entered into the subject tenancy to rent the second floor premises.

6. As I said, according to the written tenancy agreement which was in a form normally used by lawyers but was apparently made use of by the parties themselves without the intervention of lawyers, the term was for two years starting from 1 November 1998 to 31 October 2000.

7. In her first affirmation, the defendant went on to say that when the time for the expiry of the term of the two units on the fourth floor approached, i.e. in about October 1999, she brought up the matter with Mr Chan in order to work out basically what the parties had agreed previously. She offered Mr Chan two options, i.e. either to extend the term of the tenancy of the two units on the fourth floor to 31 October 2000 so that all three tenancies would expire on the same date, or the plaintiff would accept an early surrender of the tenancy of the second floor premises on 31 December 1999 to coincide with the expiry of the term of the two units on the fourth floor. According to the defendant, Mr Chan eventually opted for the second option, in other words, the parties reached an agreement that the defendant and her company would move out of all three units on 31 December 1999. This, as I have mentioned, forms the factual basis for the pleaded defence of a surrender agreement.

8. But the facts relating to what allegedly happened one year earlier, i.e. at the time when the subject tenancy agreement was negotiated for, constituted the backbone of two further arguments raised before me today by Ms Chan, counsel for the defendant, namely collateral contract and misrepresentation.

9. As I understand it, Mr Chong, counsel for the plaintiff, proceeded with his application for summary judgment this way: firstly, he sought to persuade me that despite the various factual allegations made by the defendant, the story put forward was basically unbelievable or incredible or was so contradicted by the contemporaneous documents that the court, even at this stage, should not accept her story. Secondly, Mr Chong also argued on the law applicable assuming that one had to accept the story put forward by the defendant at face value.

10. Turning to the facts, I must remind myself that I am not conducting a trial of the dispute between the parties. I am here only performing a sort of screening test to see whether the defendant has raised an arguable case and in this context whether an arguable case on the facts.

11. Mr Chong pointed out to me with great force a number of factors which would seem to contradict or discredit the story of the defendant. An obvious point was that if the parties agreed that all three tenancies should expire on the same day, the simplest thing to do was to use 31 December 1999 as the expiry date for the subject tenancy of the second floor premises. Mr Chong also challenged the alleged explanation given by the defendant as to why no break clause coinciding with the expiry of the term of the two units on the upper fourth floor was inserted into the subject tenancy agreement (namely, that the parties were dealing with the matter in a very informal way), by saying that the parties, in fact, went into the trouble of signing a replacement tenancy agreement for the earliest tenancy agreement relating to one of the two units on the fourth floor to vary firstly the rent, which is not that material in the present context, and the expiry date of the tenancy in question by extending it to 31 December 1999. If the parties went to such a trouble to have a replacement tenancy agreement in writing executed by the parties to record their agreement for the extension of the term of one of the two units on the fourth floor, there would have been no reason why the parties would not have inserted an appropriate clause into the subject tenancy agreement in question which was executed about four months after the replacement tenancy agreement relating to one of the two units on the fourth floor.

12. Mr Chong also pointed out to me that this alleged oral assurance in 1998 was never mentioned in the defence which only focussed on the surrender agreement.

13. Mr Chong also pointed out to me that in fact in the defence, a Mr Sze was alleged to have been the person who had been dealing with the defendant in relation to the tenancy matters. Moreover, Mr Chong drew my attention to the fact that unlike the first two tenancy agreements, the subject tenancy agreement was entered into by the defendant trading as Foon Tai Trading Company and according to the provisions in this tenancy agreement, the second floor premises were rented for the carrying out of the business of Foon Tai Trading Company or that of a company with a Chinese name " ", none of which had any apparent connection with the defendant's own business in the name of Nippon for the purpose of which the defendant said she rented the premises on the fourth floor. I took all this into account.

14. In relation to the alleged surrender agreement, it is quite plain to me from reading the defendant's two affirmations that according to the defendant, the surrender agreement was actually an effort to work out the parties' agreement reached one year earlier, namely, that the defendant could have the three leases terminating on the same day, as reflected by the two options suggested by the defendant. There were indeed, at least, these two methods of working out the oral assurance. So in my view, this was not an independent surrender agreement as such which the parties just happened to have reached towards the end of the term of the two tenancies in relation to the fourth floor.

15. I say all this because in my view this surrender agreement on the facts must stand or fall together with the alleged oral assurance in 1998 for the purpose of evaluating whether the defendant has put forward an arguable case on the facts, bearing in mind the test appropriate for an Order 14 adjudication.

16. In this regard, Mr Chong said that the letter dated 17 December 1999 written by the defendant to the plaintiff notifying the plaintiff that the defendant or her company, Nippon, was vacating the two units on the fourth floor as well as the unit on the second floor by the end of December 1999, was quite inconsistent with the defendant's case of an alleged oral assurance in 1998 and a surrender agreement made pursuant thereto in October 1999. In particular, Mr Chong pointed out that in this short letter, there was no mention whatsoever of the oral assurance in 1998 or the surrender agreement made in October 1999, i.e. two months before this letter was written. Moreover, the author of the letter apologised to the plaintiff for vacating the premises. Again, I took this into account and I can see the force of the argument.

17. Ms Chan for the defendant countered all this by pointing to other matters in evidence, i.e. the lack of any demand for damages or compensation on the part of the plaintiff after the vacating of the premises by the defendant at the end of 1999. In particular, Ms Chan reminded me that the first letter written on behalf of the plaintiff for compensation amounting to over $200,000, was not written until more than one year after the vacating of the premises. At best, the plaintiff could only point to a solicitor's letter written on 1 April 2000 to the defendant pointing out that the tenancy agreement for the second floor unit was for a fixed term of two years without a break clause and the plaintiff had not agreed to the request made in the defendant's letter dated 17 December 1999 for early termination of the tenancy, and reserving all rights of the plaintiff to claim compensation or damages from the defendant for breach of contract. The gist of Ms Chan's argument was that it was too lame a letter to have been written had there really been no agreement between the parties relating to the early termination of the second floor premises to coincide with the expiry of the term of the fourth floor premises.

18. Ms Chan also pointed to some other matters detailed in her skeleton relating to the explanation proffered by the plaintiff's representative as to why no earlier letter of demand making a definite claim for compensation had been written. Ms Chan said those explanations were rather difficult to believe; in particular, she referred to the explanation that the plaintiff was not sure about the address of the defendant and therefore did not write to the defendant earlier and countered that by saying that the address of the defendant was everywhere. I accept that criticism.

19. In deciding whether the defendant has discharged her threshold burden in this 0.14 other application to show an arguable defence, I bear in mind what the Court of Appeal said and actually did in relation to the alleged oral agreement alleged by the defendant there in the case Bank of India v Surtani [1994] 1 HKC 7, as well as the emphasis placed by the Court of Appeal in that case on the importance of upholding written contracts and agreements against any mere assertions of a verbal collateral agreement contradicting or varying the terms of a written agreement. By doing so, the Court of Appeal was adopting the wise words of Lord Moulton in Heilbut, Symons & Co v Buckleton [1913] AC 30 at 47,48, a passage which Lord Denning had an occasion to criticise as being out of date in J Evans & Son v Andrea Merzario Limited [1976] 1 WLR 1078 at 1081.

20. In my judgment, whilst I share the many doubts raised by Mr Chong in relation to the case of the defendant on the facts and bear in mind the principles laid down in Surtani relating to the court's approach towards an alleged collateral agreement in examining a story put forward by a defendant, I cannot definitely at this stage come to the conclusion that the story put forward by the defendant must not have happened as a matter of fact, or in other words, that the story of the defendant is unbelievable or practical moonshine or if so contradicted by the contemporaneous documents that it may be ruled out summarily at this stage.

21. I bear in mind that what happened after the defendant's vacating the premises, in particular, what the plaintiff did or did not do after the alleged breach of the tenancy agreement on the part of the defendant, does call for some further investigation in this case. I accept that the alleged oral assurance given in 1998 was not very precise. There could be different interpretations on what the parties actually meant. Indeed, as I said, that was reflected by the two options put forward by the defendant allegedly in 1999 in an attempt to work out the parties' agreement reached the year before. And I note what the Court of Appeal said in Surtani.

22. But in my judgment, the alleged oral assurance was not so uncertain or imprecise as to be incapable of giving rise to any legal effect in the context of the present case, nor do I think that the imprecision of the alleged oral assurance suggested conclusively that there was no intention on the part of the parties to have any legal consequence flowing from the assurance itself.

23. It must be remembered that one is dealing with two laymen in the present case, an elderly gentleman on the one part, i.e. Mr Chan, and a businesswoman on the other, i.e. the defendant. Unlike the case of Surtani, one is not dealing with a banker on the one part and a businessman on the other, so one has to give, at least at this Order 14 stage, some allowance to the parties by reason of they being simply laymen. And so far as I can see, the story is tolerably clear, i.e. that there would be a term of tenancy for the second floor for two years, subject to an alleged overriding assurance that there would not be any problem for the defendant to have the three leases terminating on the same day which could be achieved by one method or another and that could be achieved without further agreement between the parties. By that I mean that that could be achieved by the defendant vacating the premises on 31 December 1999 if the parties could not reach any agreement relating to the extension of the term of the two units on the second floor to 31 October 2000 because, for example, they could not agree on the rent payable for the extended term and so forth, and indeed, that was allegedly what happened according to the defendant. So on the factual front, I am not prepared to shut out the defendant.

24. I now move on to deal with the legal argument mounted by the defendant based on those factual matters which I cannot, as I say, rule out at this stage. I should deal firstly with the argument based on collateral agreement.

25. I think a good starting point is the local case Cheuk Tze-kwok v Leung Yin-king [1993] 2 HKLR 169, a Court of Appeal decision which I referred counsel to at the beginning of the hearing this morning and a decision which I have a particular reason to have some recollection of. That case illustrated a fine distinction between what is and what is not a collateral agreement. The context against which the decision was made was that if something was a collateral agreement, it would constitute an exception to the parol evidence rule against the admission of extrinsic evidence to add to, contradict or vary a written agreement. If something was not regarded as constituting a collateral agreement, then that something would not be admissible by way of evidence and the parties would be bound by the signed written agreement. So likewise, in the present case if the alleged oral assurance in 1998 could fit into the category of collateral contract, that alleged oral assurance could be admitted as evidence to supplement or contradict or vary the term of the tenancy agreement. If it could not be so fit into the category, then although on the facts, I could not shut out the defendant relating to the oral assurance, that oral assurance would not assist the defendant in resisting the plaintiff's claim.

26. Cheuk's case illustrated a fine distinction. If a defendant says that knowing that a particular clause was in the agreement, yet he nevertheless signed it on the basis of an undertaking or assurance given by the other side that the clause would not be enforced, that, assuming that the facts are accepted, would constitute a collateral agreement and evidence of that collateral agreement can be admitted to add to, contradict or vary the written agreement. But, if in truth what he is saying is that there was a different contract between the parties in relation to the subject matter in question which is not reflected in the agreement, then he is in fact endeavouring to prove another contract between the parties, i.e. the alleged oral contract, and that would not be a collateral contract and that would not be an exception to the parol evidence rule and evidence of this alleged oral contract would not be admitted.

27. On which side of the line does the present case fall?

In my judgment, it is tolerably clear from the first affirmation of the defendant, particularly paragraphs 20, 21 and 24 of the affirmation, that the defendant was seeking to say that she had entered into the subject tenancy agreement in relation to the second floor premises for a term of two years starting from 1 November 1998 to 31 October 2000, subject to an oral promise given to her by Mr Chan on behalf of the plaintiff that there would not be any problem for her to have the three tenancy agreements in question terminating on the same date. To me, the defendant was really saying that she knew that the tenancy agreement in question was for a fixed term of two years; she knew there was no break clause as such contained in the written agreement, but she was not troubled or worried by the fixed term without a break clause - although she was concerned to see to it that she could have the three units together or none at all - because the plaintiff had given her a promise that the plaintiff would allow her to have the three leases terminated on the same day by one way or another. I shall not repeat myself here as to by what way that could be achieved.

28. In my judgment, arguably, and I need say no more than that for the purpose of deciding this Order 14 application, the defendant was saying that there was an oral assurance or undertaking given by the plaintiff that the fixed term in the tenancy agreement would not be enforced strictly, if necessary, so as to enable the defendant to have the three tenancy agreements terminated on the same day. I say 'if necessary' because, obviously, there was at least one other way of going about things which would enable the three tenancies to come to an end on the same day without affecting the fixed term of two years in relation to the subject tenancy.

29. So for that reason, I cannot rule out at this stage a case of collateral contract being successfully raised by the defendant based on the facts put forward by the defendant, which as I said, again I cannot rule out at this stage.

30. It only remains for me to add that the law relating to collateral agreement has developed to such a stage that if there was indeed an oral or extrinsic assurance or undertaking on the part of one party not to enforce a particular term in a written contract, evidence of that oral assurance or undertaking is admissible, even though the effect is to contradict or vary the written term in question. See for example the case of J Evans & Son already referred to above, as well as the English cases referred to in Cheuk Sze-kwok which, on the facts of that case, the Court of Appeal distinguished. But the principle is clear. And I would add that in Surtani, the Court of Appeal did not say that such an oral assurance or undertaking could not, as a matter of law, vary or contradict a written agreement. What the Court of Appeal was trying to say was that the burden was one which was higher than the normal Order 14 burden placed on a defendant.

31. So, given my conclusion relating to the collateral agreement argument, I need not deal with the misrepresentation argument raised by Ms Chan for the defendant at this hearing. Suffice it to say, I would have thought that if the defendant failed on the collateral contract argument, it would be very surprising that she could go through the back door of misrepresentation to mount a defence. But, as I have already held, at least at this stage I find the defendant's collateral contract argument an arguable one, and therefore I need not say anything further about the misrepresentation defence.

32. I have also indicated to the parties during the course of argument, that even if I were with Mr Chong who had raised very good arguments on behalf of his client, I must say I would not be minded to grant final judgment. From the nature of the claim in question, it would appear to be at least arguable whether the plaintiff's loss extended to the whole of the remainder of the term in question, i.e. a period of 10 months in total, even in this sort of economic climate. For the making of such sort of claim, a trial would be appropriate, but since I am not minded to shut out the defendant either on the law or on the facts at this stage, this question of whether I should grant a final judgment or interlocutory judgment at this stage does not arise at all.

33. This is an unusually lengthy judgment for an Order 14 application, particularly when the court is deciding against the granting of any summary judgment, but I think the issues and the arguments raised call for a more detailed analysis than usual. I say all this not to justify the length of this judgment but to make clear that what I say in this judgment is not meant to affect in any way the outcome of the trial of this case which because of my judgment will have to take place. Everything I have said is based on the test of whether there is an arguable case either as to law or fact and, of course, at trial the test is totally different, and what I say here is purely for the purpose of disposing of this Order 14 application in the light of the materials presented before me and the arguments raised before me. In fact, with the prospect of a trial in mind, I have refrained from going into any further detail relating to either the facts or the possible legal arguments involved.

34. So for all these reasons, I am not minded to grant summary judgment.

35. I note that this application was made after the defence was filed. Subject to any further argument, I am not minded to dismiss the application, even though it was taken out after the defence was filed. I say this for this reason: as I said, the defence only raised the surrender agreement. It referred to a Mr Sze who did not feature in the affidavit evidence. It did not refer to the earlier oral assurance. It did not refer to the collateral contract. I need not repeat myself as to the importance of these matters to my decision reached today. So I think in all fairness, subject to any contrary argument, I should not dismiss the summons but instead give unconditional leave to the defendant to defend.

(Discussion re directions)

36. No directions given.

(Costs submissions)

37. Costs in the cause with certificate for counsel.