XCHRX LEUNG SIU CHUEN v. ONG'S PROPERTIES (HOLDINGS) LTD.

HCA8728/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8728 OF 1998

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J U D G M E N T

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1. In May 1997, the plaintiff entered upon a tenancy agreement with the defendant for the letting of premises in Robinson Road. The defendant ran the premises as estate agents' offices and ran into rental arrears and in May 1998, the plaintiff instituted proceedings, claiming $323,313 arrears plus interest.

2. An acknowledgment of service was filed and then pursuant to an application by the defendant, the defendant was granted an extension of time in which to file its defence. That extension expired on 10th July. On 9th July, the defendant took out a further time summons for which the return date was 17th July. No defence had been filed by the time the extension expired on 10th July, and on 15th July judgment in default of defence was entered. This is an application by the defendant to set aside that judgment.

3. The judgment was a regular judgment. What the defendant says is that it has a defence to the plaintiff's claim. The defence is that the plaintiff's wife represented that the premises could lawfully be used for the purpose for which the defendant wished to use them, namely, as offices, whereas the occupation permit only allowed, it is said, the premises to be used as a garage for non-domestic purposes. Accordingly, so the argument goes, the agreement is voidable and the defendant is entitled to have it rescinded. An earlier suggestion that it was void has been abandoned. It is not argued by counsel for the defendant that there is anything in the explanation for failure to file the defence in time that warrants a sympathetic approach. If that were the suggestion, it would not find favour with this court.

4. The court has a wide discretion under O.13, r.9. All relevant circumstances must be considered. A prime, though not the only, consideration is whether the defendant has shown a defence on the merits. The meaning of that phrase is canvassed in Premier Fashion Wears Ltd. v. Chow Cheuk Man [1994] 1 HKLR 377, where Godfrey J. A. said at page 383 :

".... it is generally not sufficient for a defendant merely to show an arguable defence, although that alone would justify leave to defend being given under O.14. A defendant who seeks to set aside a regular judgment must at least show that his case has a real prospect of success. To do so he must satisfy the court that his case, and the evidence he has adduced in support of it, carries some degree of conviction. It seems to me that unless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he will succeed on fact, he cannot have shown that he has a real prospect of success.

In the present case, the defence of the Third Party is that there was no contract of any sort at all between himself and the defendant. That, if made out, would obviously afford the Third Party a good defence to the Third Party proceedings. But in my judgment that is not enough. The court still has to form a provisional view of the probable outcome of the action. Has the Third Party satisfied the court that there is a real likelihood of his succeeding on the facts?"

5. There is not envisaged a trial on the affidavits, but still "if the material before the judge is such as to leave him in no doubt that the defence has no real prospect of success, or that it carries no degree of conviction", then, it is his duty to refuse the application (see Godfrey J. (as he then was) in Tadashi Furusawa and Leung Kwok Chai HCA No. A3225 of 1989 at p.3.)

6. In an affirmation filed in the case before me by the company director Mr Leung Kai Kuen, for the defendant company, he says that :

" On or before the date of the Tenancy Agreement, the Plaintiff's wife acting with apparent and/or actual authority of the Plaintiff informed Miss Katherine Poon of the Defendant that the Garage on ground floor of No. 27E Robinson Road, ..... was available for letting to the Defendant as a shop for a term of 3 years commencing from 1 November 1997.

Acting on the faith and truth of the said representation of the Plaintiff's wife, and induced thereby, the Defendant entered into the Tenancy Agreement on 15 May 1997."

It is said that the plaintiff's wife well knew that the defendant required the premises to carry on the business as an estate agent. Then it is contended that the representation was in fact false in that the occupation permit issued by the Building Authority granted permission to occupy for the purpose "of garage for non-domestic purpose." Miss Poon has also made an affirmation about that alleged representation.

7. It is said that the defendant company later discovered that the representation was untrue. "Later" is not particularized and it may well be that "later" means after these proceedings were issued, because it was only then that the defendant's solicitors applied for a certified copy of the occupation permit. There is no suggestion that this had any bearing on the failure ever since November 1997 to pay the full rent. In fact rent was being paid until April 1998 when the defendant company left the premises, and there is no suggestion that they left the premises because of any problem concerning user. The only written communication from the defendant to the plaintiff about the matter is a letter dated 10th June 1998, which says that it is the uncertain property market that drives them to surrender the premises and asks that the deposit be used towards offsetting the arrears of rent. The fact that there are arrears is not, even to this day, disputed.

8. The tenancy agreement is dated 15th May 1997. It is in writing and it lets "the property" for a period of three years from 1st November 1997. "The property" is described in a schedule as "Garage on ground floor of No. 27E Robinson Road, Hong Kong."

9. Clause 2.24 of the Agreement provides as follows :

"Not to use or permit or suffer the Property or any part thereof to be used for any purpose other than wholly and exclusively for the purpose set out in the Sixth Schedule hereto Provided that no warranty is given by the Landlord that such use is authorised or permitted by the relevant laws or authorities."

The Sixth Schedule to the Tendency Agreement reads as follows :

"User : Non-residential purpose only."

Clause 3.1.6 requires the tenant :

"To apply for obtain and maintain in full force at all times all certificates consents licences or approvals necessary for the carrying on of the Tenant's business on the Property and to pay all costs charges expenses fees and excise duties (if any) payable in respect thereof PROVIDED ALWAYS that no warranty or undertaking is given by the Landlord as to whether the Tenant is allowed or permitted to carry on any business on the Property or whether any such certificates consents licences or approvals can be obtained or maintained in full force throughout the Term."

10. The occupation permit runs in its material part as follows :

"I hereby permit the occupation of the new building at No. 27 Robinson Road ...... for the following purposes :

Ground floor : 3 garages for non-domestic purpose.

1st floor : 3 European type flats for domestic purpose.

......."

and so on.

11. The plaintiff's wife denies that she ever made the representation asserted. She points out that the defendant company was at all times being represented by its own solicitors when negotiating in respect of the lease with the plaintiff's solicitors. The assertion as to representation by legal advisers at those times is not disputed in the affirmations placed before me. It is also common ground that the defendant company is, and was then, a company which ran the business of estate agents and which had something in the region of 40 branch offices in this territory. The plaintiff's wife is a housewife.

12. I am not satisfied that there is a real likelihood of the defendant succeeding in its defence.

13. If the evidence about the representations be true, then it constituted a representation of fact; a representation about which the representor had special knowledge and, in the circumstances described, was made for the purpose of inducing the defendant company to enter upon a contract. All that being so, the purport and effect of the contention arising from the evidence given by or on behalf of the defendant company must be that the statement was a term of the contract. Yet the contract itself states that no warranty is made as to permitted user and that is stated both in paras. 2.24 and 3.1.6. It is suggested by Mr So, on behalf of the defendant company in argument before me, that both those clauses constitute some sort of exemption clause. I do not agree. The point is that in the circumstances which I have described, a court will treat with suspicion the suggestion that there was a term to the effect advanced by the defendant. That suspicion is heightened when one appreciates that the defendant company was engaged upon the business of estate agent and the fact that it was, at the time of the negotiations, legally represented. These were people steeped in the business of letting properties. The burden is on the defendant to show that not only was the representation made, but also that if made, it was intended that it should be relied upon without the normal checks one would expect of someone in the defendant's position.

14. The representation is said to have been made by the plaintiff's wife on his behalf. The authority of the wife to make that representation on his behalf is not shown on the evidence before me. All that is said is : "On or before the date of the Agreement the plaintiff's wife acting with apparent and/or actual authority of the plaintiff informed Miss Poon ....." and so on. Given the central role that the question of authority is bound to play when an allegation of that kind is made, that bare assertion is not good enough. There is no evidence at all of actual authority. There is no suggestion that the plaintiff represented to the defendant by words or conduct that the wife had authority to act on his behalf in relation to this letting. The onus of proving that authority lies on the defendant, and that onus is not discharged even on a prima facie basis. There is a suggestion by Mr So that a presumption of authority arises from the fact of cohabitation between the plaintiff and his wife. The point, with respect, is not valid. That presumption, where it arises, relates to authority to pledge credit.

15. These points suffice, in my judgment, to dispose of this matter.

16. I should add that I have some doubt as to whether the occupation permit is as limited in its restriction on user as Mr So suggests. It describes the premises as garage premises and then goes on to limit user to non-domestic. It does not on the face say that the premises have to be used as a garage. But this point is unnecessary to my decision.

17. In the circumstances, the defendant's application to set aside judgment is dismissed.

18. There is also an appeal by the defendant against an order of Mr Registrar Betts that execution of that judgment be stayed until determination of this application. There is an appeal against that order which is now otiose since the application to set aside has been determined, but in so far as it is necessary to deal with that appeal, it is dismissed.

19. There will be an order that the defendant will pay the costs of this application as well as costs reserved by Mr Registrar Betts on 13th July and those reserved by Wong J. on 19th August, as well as the costs of and occasioned by the appeal to which I have referred.

(F. Stock)

Judge of the Court of First Instance,
High Court