LAU SHUN PING DANNY v. LAI HANG VA

HCA 1553/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1553 OF 2009

_______________

_______________

J U D G M E N T

_______________

1.  This is a landlord and tenant dispute.

A.  THE PLAINTIFF’S CLAIMS

2.  The plaintiff’s claims are straightforward.  He is the registered owner of a pre-War building situated at No 297, Portland Street, Mongkok, Kowloon (“the Property”).  It is more than 50 years old with four floors (“the G/F”, “the 1/F”, “the 2/F”, and “the 3/F” respectively).  By a Chinese tenancy agreement dated 17 January 2009 (“the Tenancy Agreement”), he let the Property to the defendant for a term of 3 years commencing on 23 February 2009 and expiring on 22 February 2012. The monthly rent was HK$180,000, of which HK$160,000 was attributable to G/F, HK$10,000 to the 1/F and HK$5,000 to the 2/F and the 3/F each.  The defendant was to pay government rent and rates as well.

3.  After paying the deposits of HK$540,000 and the rent for the first month of the tenancy, the defendant had since 23 March 2009 failed to pay any rent, government rent and rates.  On 9 July 2009, the plaintiff commenced the present proceedings, claiming for possession of the Property and the outstanding rent, government rent and rates.

4.  On 20 October 2009, the plaintiff applied for summary judgment.  By order dated 16 November 2009, the master ordered the defendant to pay, by way of interim payment on account of the continued use and occupation of the Property from 16 October 2009 until further order, periodical payment of HK$187,239.83 being mesne profits together with government rent and rates.  The master then adjourned the application for summary judgment for substantive argument.  On 28 December 2009, another master gave the defendant unconditional leave to defend.

5.  On 23 February 2012, the date upon which the tenancy was to expire under the Tenancy Agreement, the defendant delivered vacant possession of the Property to the plaintiff.

6.  Because of the development since the commencement of the proceedings, the plaintiff has revised his claims to seek :

(1) mesne profit between 23 March and 15 October 2009 in the sum of HK$1,218,000;

(2) government rent between 23 February and 15 October 2009 in the sum of HK$307.75; and

(3) rates for the G/F between 23 February 2009 and 15 October 2009 in the sum of HK$53,299.52

totaling HK$1,271,607.27.

B. THE DEFENDANT’S CASE

7.  The defendant’s case is rather convoluted. Properly analysed, there are three factual components supporting his defence and counterclaim.

B1.  Based on the Representation and Assurance

8.  The first factual component is this.

9.  The defendant alleged that when the parties discussed about the tenancy in January 2009, the defendant informed that plaintiff that he would use the G/F as a shop selling building materials and much renovation would be necessary if the defendant were to rent the Property; and that the upper floors would be for accommodation of his overseas and PRC business acquaintances.  The plaintiff represented to him that the Property was fit to be used as a shop on the G/F and as domestic and/or commercial premises on the other floors (“the Representation”).  The plaintiff also reassured the defendant that the Property would be renovated by the plaintiff to very high standard comparable to 5-star hotel and would be suitable to accommodate his important overseas business acquaintances (“the Assurance”).  However, the plaintiff failed to renovate the Property up to a five star hotel as per the Assurance.

B2.  Based on the Building Order and Fire Safety Direction 

10.  The second factual component is centred round a building order dated 11 June 2008 and a fire safety direction dated 29 August 2008 issued by the Buildings Department in respect of the Property (“the Building Order” and “the Fire Safety Direction” respectively).  The Building Order demanded the plaintiff to carry out remedial work :

“(a) 清除鬆脫/破裂/破損的混凝土，清理外露的生銹鋼筋，如有需要，更換/加裝鋼筋，並重新澆注混凝土，以修復原狀。

(b)  清除內外牆所有鬆脫/破損的批盪。”

The Fire Service Direction directed the plaintiff to comply with various safety directions attached on or before 29 August 2009 and added :

“2. 你如無合理辯解而沒有遵從本指示的規定，你可被控違反《消防安全(商業處所)條例》第5(7)(b)條。一經定罪，法院可判處最高罰款$25,000，並可就該項違例行為持續期間每天或一天的部分時間另處罰款$2,500。本署亦可根據《消防安全(商業處所)條例》第6(1)條向區域法院申請發出命令，著令你在上述指明商業建築物內遵從消防安全建造規定。

3.  若不遵從本指示的規定，區域法院亦有可能根據《消防安全(商業處所)條例》第7A(1)條，發出禁止令，禁止佔用上述指明商業建築物。”

11.  It is not seriously in dispute that the plaintiff received copies of the Building Order and the Fire Safety Direction from his former tenant of the Property in early October 2008.  He then engaged Pak Tat Property Management Limited (“Pak Tat”) to carry out remedial work to comply with the Building Order.  Pak Tat in turn sub-contracted the work to its related company, Diploma Construction Limited (“Diploma”).  The remedial work was finished on or about 31 January 2009 (on the plaintiff’s case) or sometime in February (on the defendant’s case).  The Buildings Department issued a letter dated 3 April 2009 confirming that the Building Order had been complied with.

12.  The plaintiff did not cause any work to be done under the Fire Safety Direction because, upon advice, he took the view that it was not applicable to the Property as it was not for commercial use only.  His view was proved to be correct when the Buildings Department issued a letter dated 6 August 2009 to withdraw the Fire Safety Direction.

13.  The plaintiff alleged that during negotiations of the Tenancy Agreement, he had already informed the defendant of the Building Order and the Fire Safety Direction.  He even gave him a copy of the documents on 17 January 2009 before they signed the Tenancy Agreement.

14.  The defendant denied and complained that the plaintiff did not inform him of the Building Order and the Fire Safety Direction before and at the time when the parties entered into the Tenancy Agreement.  He only came to know about it accidentally from the workers of Diploma who were carrying out work at the Property on 22 February 2009.  He immediately called the plaintiff.  He then wrote to the plaintiff on the following day.  Letters, including lawyers’ correspondence, then ensued.  I will return to the correspondence in greater detail in a moment.

15.  The defendant alleged that upon his complaint about the Building Order and the Fire Safety Direction, between 23 February and 9 March 2009, the date on which the plaintiff provided him with a copy of the Building Order and the Fire Safety Direction, and beyond, the plaintiff made a Compliance Agreement and Rental Suspension Agreement with him, which he had repeatedly throughout the said period.

16.  The defendant’s case on the contents of these Agreements is however not entirely consistent.  In his pleadings, the defendant pleaded that under the Compliance Agreement, the Property would be renovated to comply with the Building Order and the Fire Safety Direction by latest by late March 2009; and that under the Rental Suspension Agreement, he would not be asked to pay the rent, rates or government rent until both the Building Order and the Fire Safety Direction had been complied with.  In his witness statement, the reference to the Building Order and the Fire Safety Direction in both the Compliance Agreement and the Rental Suspension Agreement is replaced by any or all orders issued by any government department.

17.  Anyway, the defendant alleged that pending compliance of the Building Order and the Fire Safety Direction, no rent, government rent and rates were payable under the Rental Suspension Agreement. The plaintiff only informed him of the compliance of the Building Order on 14 April 2009 but he did not tell him that the Buildings Department had withdrawn the Fire Safety Direction until 5 October 2009.

18.  Further, the defendant intended to operate a specialist mosaic tiles shop at the G/F and open business before Easter or summer.  However, while the Building Order and the Fire Safety Direction were still in force, he was unable to buy insurance for the Property.  The Property was unsafe for occupation and no insurance company was willing to provide insurance coverage.  He was only able to open the tiles shop on 18 October 2009 after he was told that the Fire Service Direction had been withdrawn.

19.  The defendant alleged that he had been deprived of the use of the Property between 15 March and 18 October 2009.  He had suffered and loss of business during that period in the tune of HK$825,000.  Further, he had spent HK$506,690 on renovation and fitting out of the Property.  He suffered pro-rata loss on such costs of HK$14,074.72 per month over the same period when he could not use the Property.

B3.  Based on water leakage    

20.  The third factual component relied on by the defendant is that there was serious water leakage at the Property during the currency of the tenancy, which he said had rendered the Property unfit for his use and occupation and impeded his quiet enjoyment of the same.

B4.  Pleaded case

21.  Turning to his defence and counterclaim, the defendant first pleaded that the following terms (“the Implied Terms”) were implied into the Tenancy Agreement :

(1) the Property should be in compliance with the Building Ordinance, in particular the Building Order (“the Building Compliance Clause”);

(2) the Property should be in compliance with the Fire Safety (Commercial Premises) Ordinance, under which the Property was categorized at the material time, in particular the Fire Safety Direction (“the Fire Safety Compliance Clause”);

(3) the plaintiff should have informed the defendant of the existence of the Building Order and the Fire Safety Direction which need to be complied with before the defendant could lawfully and/or safely occupy the Property (“the Disclosure Clause”);

(4) the defendant is entitled to have quiet enjoyment of the Property (“the Quiet Enjoyment Clause”);

(5) the Property is fit to be used for the purpose it was leased to the defendant, namely the G/F to operate as a shop and the other floors as domestic and/or commercial premises (“the Fitness for User Clause”); and

(6) the Property is fit for the purpose of obtaining insurance cover for its occupation by the defendant and various parties as pleaded who are, shortly put, his licencees (“the Fitness for Insurance Clause”).

22.  The defendant next pleaded the non-derogation of grant in these terms :

(1) the defendant would be able to enjoy the Property for the purpose it was leased; and

(2) the Property is in compliance with the laws of Hong Kong, including but not limited to compliance with the Building Order and the Fire Safety Direction.

23.  He went on to plead that in breach of the Implied Terms and in breach of the duty under the non-derogation of grant, the plaintiff had failed to disclose to the defendant the existence of the Building Order and the Fire Safety Direction until 22 or 23 February 2009 and supply the details of the Order and Direction to the defendant on or about 9 March 2009.

24.  The defendant next pleaded the Compliance Agreement and the Rental Suspension Agreement and alleged that the plaintiff had thereby orally varied the terms of the Tenancy Agreement accordingly.  Based on the Compliance Agreement and the Rent Suspension Agreement, the defendant refused to pay rents since March 2009 despite repeated demands by the plaintiff.

25.  The defendant then referred to the compliance of the Building Order and withdrawal of the Fire Service Direction.  He then pleaded that by a letter dated 15 October 2009, the defendant’s solicitors offered to the plaintiff to commence the tenancy and rental payment on 16 October 2009.  On 18 October 2009, the defendant opened the G/F for trading for the first time.

26.  The defendant further pleaded that contrary to the Representation and in breach of the Quiet Enjoyment Clause, the Fitness for User Clause and the non-derogation from grant, water started to leak through the exterior walls and roof of the Property since June 2009.

27.  Finally, the defendant counterclaimed for :

(1) loss of trading profit between 15 March and 18 October 2009 at the revised figure of HK$117,771.45 totalling HK$824,400.15 and a pro-rata loss on the costs of renovation for a trading period of 3 years at HK$14,074.72 per month for the same period totalling HK$98,523.04;

(2) loss of use of the 1/F, the 2/F and 3/F and the roof;

(3) loss of interests on the sum of HK$180,000 paid as rent for the first month of the tenancy; and

(4) return of deposits of HK$720,000.

28.  The defendant also counterclaimed for a declaration that the plaintiff is not entitled to enter into the G/F during the currency of the tenancy.  But that has been overtaken by his delivery of vacant possession in February 2012.

B5.  The plaintiff’s reply

29.  In reply and defence to counterclaim, the plaintiff pleaded that when he agreed to let the Property to the defendant, he had made it clear to the defendant that there were a building order and fire safety direction.  Therefore the plaintiff needed to renovate the Property before handing it over to the defendant.  He denied he had made the Representation.  No implied terms as alleged by the defendant existed.  Nor was there any duty of non-derogation of grant as alleged or at all.  Any breach on his part, which is denied, did not excuse the defendant from paying rent, government rent and rates.

C.  FINDINGS ON PRINCIPAL FACTUAL DISPUTES

30.  At trial, the parties had agreed on a list of main issues arising from the pleadings prepared by me.  Having heard the evidence and considered the submissions, I think the main issues can be best visited after the principal factual disputes are resolved.

31.  The factual witnesses for the plaintiff are he himself and on Mr Law Chi Keung (“Mr Law”), a director of Pak Tat who, as said, carried out work under the Building Order.  The defendant gave evidence and called the manageress of the shop operated at the G/F, Ms Leung Kit Ying (“Ms Leung”).  Ms Leung is also the defendant’s sister-in-law.  I have already considered their evidence carefully.  However, I do not intend to deal with every point raised in their evidence.  For it is simply not necessary to do so.

32.  The expert witnesses are Mr John Ip for the plaintiff (“Mr Ip”) and Dr Peter Lai for the defendant (“Dr Lai”).  They dealt with water leakage at the Property.

C1.  Representation and Assurance

33.  The first principal factual dispute to be dealt with concerns the Representation and the Assurance.

34.  The plaintiff simply denied that he had ever made the Representation or the Assurance.  Subject to what I am going to say below, the defendant’s evidence is more or less in line with what he had pleaded.  Ms Leung’s evidence on this point is of little value because she was not privy to the negotiations between the parties.

35.  In his witness statement, the defendant said :

“12. Prior to entering into any leasing agreement, I told Mr Lau that I intend to rent the ground floor to run as a retail shop selling building materials and use the upper floors to accommodate my VIP business acquaintances from Mainland China. Instead of telling me about the existence of these 2 orders, Mr Lau clearly represented to me that the Ground Floor of the Premises would be ideal to run a shop selling building materials and the upper 3 floors would be also ideal for my Mainland Chinese visitors to Hong Kong. I shall refer the above representation as ‘Suitability Representation’.

13. I also felt very much deceived by Mr Lau’s repeated promises made to me in early January 2009 before I agreed to lease the 1^st, 2^nd and 3^rd Floors in that the 3 upper floors would be renovated to a very luxurious standard comparable to those of 5 star hotels. He reassured me many times that the 3 floors would definitely be fit to accommodate my important business acquaintances from Mainland China. I shall refer Mr Lau’s aforesaid representation as ‘Luxury Representation’.

14. Mr Lau clearly told me that he would allow all floors to be used for commercial or domestic user even though the Tenancy Agreement stated that the 1^st, 2^nd and 3^rd Floors are for domestic user. I distinctly recall Mr Lau telling me that the 1^st floor can and best to be used as an office. He said that on the Tenancy Agreement it must be stated that the 3 upper floors be used as domestic premises, as the ‘official’ user for these upper floors is domestic. He stressed that he would not hold me to the as domestic user as no one (meaning the government) would know or bother to find out what purpose I use the floors for and he certainly does not mind how I use these upper floors. I shall refer Mr Lau’s aforesaid representation as ‘User Representation’. The said User Representation was made by Mr Lau in early January 2009 and repeated thereafter.

15. Prior to my agreement to rent the Premises, Mr Lau told me that I could use a whole floor of the illegal structure erected on top of the building, comprising of about 200 square feet of covered floor space. He told me that the Government cannot do anything about the illegal structure as there is no longer any building plan in existence so the Government cannot prove such structure never existed originally. Annexed herewith are photographs of the illegal structure, marked as Annexure 5. I shall refer Mr Lau’s aforesaid representation as ‘Roof Representation’.

16. From the floor plan (Annexure 3 above) it can be seen that the roof is only accessible through the same staircase which leads to 1^st, 2^nd and 3^rd Floors. Along the landings of the staircase are rooms which are under my exclusive possession. Furthermore, one must entered into the area exclusively occupied and possessed by me on both the Ground Floor and the 3^rd Floor in order to access the roof. In fact the 3^rd Floor has no door to partition it from the staircase. Having seen the layout of the Premises, I would not have rented the Premises if Mr Lau did not tell me that I have exclusive possession of the roof. It is totally insecure to have strangers walking pass the staircase which is accessible to the rooms.

17.     I like to stress that at all material times until early 2010, I have been the exclusive occupier and user of the whole building, inclusive of the roof and the said illegal structures thereon.  In actual facts, by reason that Mr Lau’s representations were so false that I could not use all the upper floors as I was led to believe and except the 1^st Floor was used for storage of goods, I have not used the upper floors at all.  Suddenly in early 2010, Mr Lau went back on his words and alleged through his solicitors that he has exclusive possession of the roof which I believe was aimed to interfere with my quiet enjoyment of the Premises.”

36.  I do not find the defendant’s version credible. Let me first dispose of two relatively minor points.

37.  The so-called “Suitability Representation” is in substance the Representation.  The “Luxury Representation” is the Assurance. But the “User Representation” and “Roof Representation” has not been pleaded in the original or any of amended versions of his defence and counterclaim.  These are significant allegations but somehow inexplicably were not pleaded.  In my view, the defendant made them up in order to embellish his story, which must be rejected.

38.  I next reject the defendant’s allegation in paragraphs 16 to 17 of his witness statement.  The Tenancy Agreement only covered the G/F to 3/F.  It did not include the roof.  The omission is glaring.  I do not believe any experienced businessmen like the parties could have failed to include the roof in the Tenancy Agreement if the defendant’s story were true.  In my view, the defendant made it up in order to justify (a) his allegation that the plaintiff had allowed him to use the roof during the tenancy and (b) his obstructive attitude when the plaintiff sought to inspect the roof in January 2010 upon his complaint that there was serious water leakage.

39.  These two points shows that the defendant is prepared to lie to suit his own interests.

40.  Moving to more substantial points, I reject the defendant’s allegation that the plaintiff had made the Representation to lure him into signing the Tenancy Agreement.  As long as he committed no breach of the Tenancy Agreement, how the defendant was going to use the Property was entirely a matter for him.  As landlord, the plaintiff would not be concerned if the Property was fit for the defendant’s use at all.  I can see no reason why the plaintiff would make the Representation as alleged.  In my view, the defendant made it up in order to bolster his allegation that the Fitness for User Clause was implied into the Tenancy Agreement.

41.  Further, it really defies common sense to suggest that the plaintiff would make the Assurance as alleged.  I find the notion that the plaintiff would be prepared to spend considerable money of his own to upgrade the Property, a 50 years old, pre-War commercial/domestic building, to one comparable to a five-star hotel for the defendant’s use, absurd.  This is no doubt a blatant but nonsensical lie made up by defendant as an excuse for not paying rent.

42.  I next come to the matters arising from the Building Order and the Fire Safety Direction.

C2.  Matters arising from the Building Order and Fire Safety Direction

43.  The plaintiff said during the negotiations of the tenancy, he had already told the defendant about the Building Order and the Fire Safety Direction.  On 17 January 2009, he went to the defendant’s office in Tai Kok Tsui and gave him copies of the Building Order and the Fire Safety Direction for his perusal.  The defendant read it and then the parties signed on the Tenancy Agreement.

44.  The defendant disagreed and said in his first witness statement :

“11. I felt cheated by Mr Lau who deliberately concealed the fact that there was the Building and the Fire Safety Direction. If I knew of the existence of any of such orders I would not have agreed to lease the Premises at all as by January 2009. Incidentally, there were about 3 or 4 other shop spaces nearby available for me to rent after the financial crisis in the end of 2008.

…

55. On or about 22 or 23 February 2009, I saw Tak Bo’s workers working at the Premises but by then vacant possession had been delivered to me. Out of curiosity, I asked the workers why the landlord (ie Mr Lau) still needed to continue to renovate when the Premises had been leased to me. One of the workers, known as ‘Ah Ming’ was working there so I asked him when would Tak Bo finish with the works. He then told me that the renovation was necessary for compliance of certain Building Order(s) issued by the Building Department.

56. That was the very first time I heard of any order made against the Premises. After hearing that I became very worried as Mr Lau never disclosed to me that there was any building order made against the building. I had no idea what sort of order(s) it would be and whether the building would be safe for occupation, given that the building was erected in or about 1940s.

57. On the same day, I immediately telephoned the Building Department but they refused to disclose to me whether there was any building order made against the building.  I then personally attended at the office of the said Department to collect a bunch of brochures on various subjects, trying to understand what could be the problem.”

45.  The defendant then described how the parties reached the Compliance Agreement and the Rental Suspension Agreement :

“58. On the same day, I also telephoned Mr Lau and complained to him of the non-disclosure of certain building order(s) issued against the building. He then told me that such orders were really just letters from Building Department requiring him to do certain works. One order was related to the building and the other related to fire regulations.

59. He orally promised me over the telephone that he would cause all building orders to be complied with by early March 2009 and asked me not to worry. I recall that he mentioned that the works required by the Building Department are works he would carry out anyway. He gave me the impression that the fire regulation order required trivial things to be done such as the installation of a hand-rail along the staircase. He told me that there should not be any problem for him to comply with the 2 orders at all. He described the 2 orders as ｢小意思、無問題｣meaning ‘small issues and no problem’.

60. Over the telephone, I demanded and he promised that the lease would commence only when the 2 orders are satisfied/discharged. Over the telephone, he also promised that he would send me correspondence with the Building Department and Fire Department, which to my understanding would cover the relevant letters requiring him to carry out the compliance works (ie the orders). He promised he would send me copies of any letter of compliance of these orders.

61. On 23 February 2009 I wrote to Mr Lau (Annexure 9 hereinabove) after our telephone conversation. As can be seen in the letter, at that time I had no idea what sort of orders were made against the Premises and I tried to put on record in my layman terms what he had promised me as stated in the preceding paragraph above.

62. Upon the said promises made by Mr Lau over the telephone, I caused the further cheque of $200,000 to delivered to him on 24 February 2009 as the 2 instalment of the rental deposit/advance rent. I believed Mr Lau that there would not be any problem to comply with the orders so I continued with the renovation and preparation of the opening of the shop at the Ground Floor.

63. Sometime after 23 February 2009, I met Mr Lau and his wife at the Tea Shop again and Mr Lau warranted to the me that :

(a) the Premises would be renovated to comply with any order issued against it by any government department latest by early March 2009 (“Compliance Agreement”); and

(b) I would only be asked to pay the rent, or rates or government rent until all the orders have been complied with by him (“Rent Suspension Agreement”)

64. I like to clarify that when Mr Lau and I agreed to the Rent Suspension Agreement, we meant that the lease would also be suspended until I the start of the payment of the rent.

65. Throughout the month of February 2009, Mr Lau appeared to be very confident that he could comply with the orders very quickly. On a few occasions inside my Fife Street Shop, Mr Lau had boasted openly that he knows people in the Building Department and there should not be any problem about the 2 Orders. He kept saying that he would be able to comply with the orders very soon. This kind of words was heard by Ms Leung Kit Ying and Mr So Chin Ping.

66. I believed what Mr Lau had told me that there would be no problem for him to comply with orders, so I continued to honour my obligations under the Tenancy Agreement by making further payments to him and continued to prepare for the opening of my shop. I ordered new mosaic patterns and tiles and employing new staff. I was very keen to start trading as soon as possible.

67. Between 23 February 2009 [and] 9 March 2009 and beyond[1], Mr Lau repeated his Compliance Agreement and Rent Suspension Agreement on various occasions including but not limited to the following occasions:

(a) at the Premises on various dates between February 2009 to end of April 2009;

(b) at the Tea Shop between February 2009 to April 2009; and

(c) at the Holiday Inn in Tsim Sha Tsui on 25 February 2009.”

46.  The plaintiff denied that they had ever made the Compliance Agreement or the Rental Suspension Agreement.

47.  The parties’ contemporaneous correspondence at the time sheds considerable light on the veracity of their case.  Indeed, they provide the best evidence to assess the truth of the parties’ evidence now proffered in court.  To ascertain what really transpired at the time, it is necessary to quote them in detail.

48.  The defendant said that after his discovery of the Building Order and the Fire Safety Direction on 22 February 2009, he immediately wrote to the plaintiff on the following day.  In that letter, he said :

“ 我司於上星期收到上述物業之鎖匙，發現防火門於22 號已安裝，但由地下至2樓樓梯之防火扶手尚未安裝，另外是否已取得屋宇署之消防滿意紙，或其他政府部門之滿意紙，例如有更改物業之結構... ...等等。我司現階段只進行舖面和室內裝修，不希望在此時違例而遭政府罰款。所以起租期於樓梯防火扶手安裝後之兩星期後或收到屋宇署，及消防局之滿意紙或其他相關機構之滿意紙開始。

由於綠色對我司不適合，所以會將所有外牆更改為淺米黃色，將原有嘉豐電業公司之招牌維持不變，並加以保護。

此外，劉生曾承諾將消防署與閣下之往來信件，消防署撤銷信件，及屋宇署之相關文件如撤銷命令之書信... ...等等之副本交矛本人，煩請閣下跟進。

最後，多謝閣下租出物業予我司。”

49.  On 10 March 2009, the defendant wrote :

“ 首先多謝 劉生在3月9日將有關屋宇署之文件送交本人，就屋宇署於二00八年6月11日發出維修以上大廈之命令，及後二00九年二月二十七日屋宇署通知維修承建商德保建築有限公司正處理事宜。敬請德保盡快與屋宇署跟進。由於現階段沒有取消命令文件，並不適合開始營業，待視察完滿後，發出取消命令文件，才開始計算租期經營業務。並附上第三期訂金HK$200,000. 上海商業銀行支票號碼213891。

現附上8張門口天花石屎剝落和生銹之圖片，另外天面防水工程經已完成多時，但防水膠仍然很黏貼牆角和地面，不知是否混合之成份有偏差所致。

至於德保建築有限公司是否已完成屋宇署要求，改善消防安全指示1A至1I項及2-4項，和能否提供相關視察文件。最後，請問是否還有其它政府部門往來文件及有關滿意紙等事項，勞交我司查閱。

在此，再次多謝閣下租出物業予我司，並合作愉快。”

50.  In a further letter dated 23 March 2009, the defendant said :

“ 3月13日門口位天花防銹工程已完成，但沒有批盪及清理廢物。在星期一 (3月16日) 早上已經見到扶手已安裝，如日後有任何安裝或維修，請先知會。

由於簽署租約時，劉生未有通知屋宇署曾發出維修以上大廈之命令，而有關命令之滿意紙，屋宇署至今尚未發出。在商討時劉生及劉太與黎生同意暫時等待，先做妥一切地下和門面裝修，希望劉先生盡快催促維修承建商德保建築有限公司處理，並聯絡屋宇署盡快視察和發出維修命令滿意紙後，才開始計算租期。

由於現階段沒有取消命令文件，故不適合開始營業，如有任何責任或違例而遭政府罰款，劉生理應負責。

在此，再次請問是否還有其它政府部門往來文件，如大廈結構 ... ...等等及有關滿意紙等事項，請書面交我司查閱。

最後，多謝閣下租出物業予我司，並合作愉快。”

51.  The plaintiff said he was surprised by this letter as the defendant was well aware of the Building Order and the Fire Service Direction.   But as a gesture of goodwill, he offered to change the commencement date of the tenancy to 16 April 2009, which was not accepted by the defendant.

52.  As said, the Buildings Department issued the letter confirming the compliance of the Building Order on 3 April 2009.  The plaintiff then informed the defendant of the same.  He then responded in a letter dated 7 April 2009 :

“ 首先，多謝閣下通知屋宇署簽發上址已完成所須工程之文件，相信檢查和結構已合格。然而屋宇署附屬消防組之改善消防安全尚未完成，我司得悉屋宇署還未接納有關改善已合格，現再等待改善消防安全函簽發後，才開始計算租期，特此通知。

如相關文件辦妥後，請書面交我司查閱。再次感謝閣下租出物業予我司，並合作愉快。”

53.  The plaintiff then wrote back on 14 April 2009 :

“ 二OO九年四月七日之來函收悉。

有關上述樓宇---九龍砵蘭街297號全幢樓宇於二OO九年四月三日已經獲得屋宇署簽發確証修葺工程滿意証書。

又者二OO九年四月八日再次與屋宇署結構工程師吳浩池先生(隨時可致電查詢電話: 2626 1341)聯絡。吳工程師說: 已經由屋宇署簽發修葺滿意證書上述樓宇是妥善使用之至，不會再有其他簽署函件發給上述樓宇。

尚且本人於二OO九年四月九日下午再與屋宇署附屬消防組最高層的負責人:梁棟材高級屋宇測量師及鄧志恆屋宇測量師(電話: 2135 2424)見面。他們完全同意及不反對我們即時使用上述樓宇，以此同時我本人(業主)更會繼續跟進。

為此請 黎恆華先生放心租賃及使用上述樓宇並祈簽署二OO九年四月十六日起租日期 為盼。

專此一函，並祝合作愉快!”

54.  In his reply dated 17 April 2009, the defendant wrote :

“ 在租賃時不知道屋宇署已通知劉先生，在結構及消防等出現問題，知道我是不會租的。及後劉先生確定全無問題，短期內都可依照屋宇署指示及完成各項工程，並提議按我司設計進行裝修，待屋宇署有書信通知何時接納工程完成合格，屆時即時起租。

我司已付劉先生三倘月按金及一個月上期合共HK$72萬元，並已使用HK$50萬元裝修費，聘請三位新員工，調動三位舊僱員，預備開展工作。

   四月三日屋宇署已通知結構上已接納工程合格，但消防問題尚未解決。請劉先生從速安排消防工程，至完成接納合格要求，我們至為感謝。以免我司再有損失。”

55.  The defendant then instructed his solicitors to write on 27 April 2009 :

“ We are instructed that since an order in respect of the Fire Safety (Commercial Premises) Ordinance (Cap 512) was issued by the Building Department against the Premises, the Letter of Compliance have not been issued despite our client’s request made on the 7 April 2009. Our client is exposed to the risk of litigation as mentioned in the Notice by the Building Department (Direction No DB FSI/00852/08) dated the 29 August 2008. Therefore, our client is of the opinion that the rental payment should be deferred until the Letter of Compliance has been issued or a date to be agreed between you and our client.”

Further correspondence between lawyers then followed.

56.  A number of matters arose from the Building Order and the Fire Safety Direction.

(a)  Non-disclosure by the plaintiff

57.  The defendant wrote in his letter dated 23 March 2009 that the plaintiff had not informed the defendant of the Building Order or the Fire Safety Direction at the time of the Tenancy Agreement.  If that is untrue, the plaintiff ought to have written back and refuted it.  He did not but instead offered to have the tenancy commenced at a later date.  I find his conduct odd.  Further, according to the letter of 10 March 2009, the plaintiff provided the copy of the Building Order and Fire Safety Direction to the defendant on 9 March 2009.  If he had already provided them on 17 January 2009, he needed not provide them again on 9 March.  These letters contradict the plaintiff’s story.

58.  On the other hand, the defendant’s story does not sit well with his letter of 23 February 2009.  He said he discovered the Building Order and the Fire Service Direction on the previous day.  He became worried about the safety of the Property.  He felt being cheated by the plaintiff.  Had he known about the Order and the Direction, he would not have entered into the Tenancy Agreement.  He was in substance alleging misrepresentation.  The plaintiff’s non-disclosure must have exercising his mind when he wrote the letter on the following day.  Yet, inexplicably, he made no complaint whatsoever about the plaintiff’s conduct.  His failure to do so is hard to explain.

59.  On balance, and I stress on balance only, I find that the plaintiff had not told the defendant about the Building Order and the Fire Safety Direction and that he had not provided the defendant with copies of the documents before they signed the Tenancy Agreement.

60.  Mr Cheung, for the plaintiff, argued that the parties knew that Diploma was carrying out remedial work at the Property.  And the Building Order and the Fire Safety Direction did not affect the use and occupation of the Property.  So the plaintiff needed not hide them from the defendant.  I think that it is exactly the reason why the plaintiff did not tell the defendant about the Building Order and the Fire Safety Direction.  For in his mind, they did not affect the tenancy at all.  In other words, I do not agree with the defendant’s allegation that the plaintiff deliberately concealed the Building Order and the Fire Safety Direction from him in order to lure him into the Tenancy Agreement.  I find that he did not disclose them because he believed that they did not affect the occupation and use of the Property.  Even though I find that there was non-disclosure of the Building Order and the Fire Safety Direction, as will be seen in a moment, the defendant is unable to derive much assistance from it.

61.  During the course of the plaintiff’s oral testimony, it transpired that the Fire Service Department had in fact issued another fire service direction dated 11 September 2008 directing the plaintiff to carry out various fire safety works at the Property on or before 11 September 2009.  The plaintiff said it was the same as the Fire Safety Direction.  Of course, it was not.  There can be no doubt, and I so find, that the plaintiff had not disclosed it to the defendant at the time of the Tenancy Agreement.  But it does not really take the case any further because there is nothing in the evidence to suggest that the Fire Services Department had taken any enforcement or legal action or that the use and occupation of the Property by the defendant had in any way be affected by that direction.

(b)  No Compliance Agreement or Rental Suspension Agreement

62.  The defendant’s story on the Compliance Agreement and the Rental Suspension Agreement is wholly unsatisfactory.

63.  First, in none of the letters exchanged between the parties and the solicitors was either the Compliance Agreement or the Rental Suspension Agreement ever mentioned.  The omission is glaring.  Had they in fact existed, the defendant and his solicitors must have mentioned it in the correspondence.

64.  Second, it had all along been the plaintiff’s case, which was later proved to be correct, that the Fire Service Direction did not apply to the Property.  That being the case, he would not have agreed to carry out work to comply with it under the Compliance Agreement as alleged.

65.  Third, it defies commercial sense to suggest that the plaintiff would be prepared to suspend the rent until the Building Order and the Fire Service Direction had been complied with.  For one thing, he was adamant that the Fire Service Direction did not apply.  He would not have agreed to suspend the rent pending the compliance of a non-applicable direction.  Another difficulty with the Rental Suspension Agreement is that at the time the parties did not know when compliance would take place.  I do not think any reasonable landlord in the plaintiff’s position would be prepared to suspend the rent for an unknown period.

66.  Finally, both the Compliance Agreement and the Rental Suspension Agreement were premised on the defendant’s assertion that absent compliance, his occupation and use of the Property would be adversely affected.  His assertion is simply not supported by the evidence before me.  The Building Order did not mention any consequence of non‑compliance.  The Fire Service Direction only said that if there was non‑compliance without any reasonable defence, the plaintiff might be prosecuted and that upon conviction, the District Court might issue an order restricting occupation of the Property.  It did not say that current use and occupation of the Property by the defendant would be affected as alleged or at all.

(c)   Insurance

67.  The defendant said he was unable to procure an insurance to cover the Property because of the Building Order and the Fire Service Direction.  Any reliance on the Building Order as an excuse for not getting an insurance coverage must have fallen away since 3 April 2009 when the Buildings Department confirmed compliance.  Further, as I understand the evidence of both the defendant and Ms Leung, the insurance companies refused to provide insurance coverage because of their understanding that the Building Order and the Fire Safety Direction prohibited or restricted the use and occupation of the Property.  But when properly read, they did not have such an effect at all.  The understanding is clearly misconceived.  The defendant cannot possibly contend that the existence of the Building Order or the Fire Safety Direction had made it impossible for him to get insurance coverage of the Property before 18 October 2009.

C3.  Matters arising from water leakage

68.  The experts carried out a joint inspection on 8 October 2010.  In short, they agreed that damp patches were found in all floors except the G/F.  The damp patches were of various sizes and different degrees of dampness.  They were found mainly at the rear part of the Property.  There were also damp patches in the front part on the 2/F.  The source of water leakage was rainwater seeping through the defective water proofing water proofing material on the roof, roof joints, cracks on the 3/F and the external wall.

69.  However, the experts differed as to how serious the water leakage was.  Dr Lai opined that water seepage was serious and that there should be significant water leakage in various parts of the Property during a rainy day.  But Dr Lai had not inspected the Property on any rainy day.  What he said must be speculation, which I reject.  I prefer the evidence of Mr Ip who said that the seepage would not severe, which is supportable by the photos they took at the inspection.

70.  Irrespective of the difference between the experts, there can be no dispute whatsoever that there was no water leakage on the G/F and the usage of the G/F as a shop by the defendant was not affected by any water leakage at other parts of the Property.

71.  As to the upper floors, the gist of the defendant’s complaint, supported by Ms Leung, is that the water leakage had rendered its condition to be incommensurable to premises renovated up to the standard of a five-star hotel.  This complaint must fail after I have found that the Assurance did not exist.  Dr Lai said that damp patches would cause health hazard and nuisance to the occupiers inside the Property.  These are again speculations on his part, which I reject.  In my view, having considered all the relevant evidence on water leakage, I do not find that it affected the ordinary use of the upper floors for commercial/domestic purposes or that it impeded his quite enjoyment of those floors or the Property as a whole as alleged.

D.      MAIN ISSUES

72.  Armed with the above factual findings, I now turn to the main issues agreed between the parties.  They are as follows :

(1) Whether sometime in early January 2009 and before signing the Tenancy Agreement :

(a) The plaintiff informed the defendant of the Building Order and the Fire Safety Direction;

(b) The plaintiff made the Representation to the defendant; and

(c) The plaintiff made the Assurance to the defendant.

(2) Whether the Tenancy Agreement contained any of the Implied Terms.

(3) Whether the plaintiff was under the obligation as per the non-derogation from grant.

(4) Whether the parties made the Compliance Agreement and the Rental Suspension Agreement as pleaded by the defendant.

(5) Whether the plaintiff was estopped from insisting on the payment of the rent and/or commencement of the lease before the Building Order and the Fire Safety Direction were complied with and/or discharged and/or withdrawn.

(6) Whether the plaintiff had failed to comply with the Building Order and the Fire Safety Direction.

(7) If so, whether the plaintiff was in breach of :

(a) The Implied Terms;

(b) His obligation under the non-derogation from grant;

(c) The Compliance Agreement; and

(d) The Rental Suspension Agreement.

(8) Whether the plaintiff had acted contrary to the Assurance and in breach of the Quiet Enjoyment Clause, and/or the NDG and the Fitness for User Clause when since June 2009, water started to leak through the exterior walls of the Property and also from the roof :

(a) What was the extent of water leakage?

(b) Did it affect the defendant’s quiet enjoyment of the Property?

(c) Did it render the Property unfit for the defendant’s use?

(9) If liability is established, what is the quantum of the loss and damage suffered by the plaintiff and the defendant, as the case may be?

I will deal with them in turn.

D1.  Issue 1

73.  Based on the findings above, I answer Issue 1(a), Issue 1(b) and Issue 1(c) all in the negative.

D2.  Issue 2

74.  In his closing submissions, Mr Cheung, counsel for the plaintiff, accepted that the Quiet Enjoyment Clause is implied into the Tenancy Agreement.  Other than that particular clause, I find that none of other Implied Terms existed.

75.  In implying a term to a contract, the court is seeking to establish what the parties must be taken to have agreed having regard to the purpose of the contract as a whole and the relevant background of the transaction.  It is dependent on the intention of the parties as gathered from the words of the contract and the surrounding circumstances.  The court will be prepared to imply a term if there arises from the language of the contract itself, and the circumstances under which it is entered into, an inference that the parties must have intended the stipulation in question.  An implication of this nature may be made in two situations : (a) where it is necessary to give business efficacy to the contract; and (b) where the term implied represents the obvious, but unexpressed, intention of the parties. Both depend on the presumed common intention of the parties, to be ascertained objectively from the overall circumstances at the time of the contract.  See Chitty on Contracts, 30^th Edn, Vol 1, para 13-004 at p 888.

76.  The parties’ common presumed intention must be based on facts commonly known to them at the time of the contract.  For a term will not be implied unless the court is satisfied that both parties would, as reasonable men, have agreed to it had it been suggested to them.  The knowledge or ignorance of each party of the matter to be implied, or of the facts on which the implication is based, is a cogently relevant factor : see Chitty on Contracts, supra, at para 13-007.

77.  The difficulty with the defendant case on the Building Compliance Clause, the Fire Safety Compliance Clause and the Disclosure Clause is this.  As I have found, he was not aware of the Building Order and the Fire Safety Direction at the time of the Tenancy Agreement.  Absent such knowledge, the defendant cannot possibly contend that the Building Order and the Fire Service Direction formed part of the factual matrix commonly known to the parties at the time of the Tenancy Agreement for the purpose of implying any of those three Clauses.  In other words, there is no factual basis to imply then. I find that they are not implied.

78.  There are, of course, cases where implied terms have become standardised and it is somewhat artificial to attribute such terms to the unexpressed intention of the parties.  In such cases, the court is in fact laying down a general principle that in the defined types of contracts, certain terms are to be implied unless it is contrary to the express terms : see Chitty on Contracts, supra, para 13-003 at pp 887-888.  This does not concern us because as I understand the defendant’s case, he is not suggesting that the Building Compliance Clause, the Fire Service Compliance Clause or the Disclosure Clause is to be implied by law, irrespective of the parties’ presumed common intention.

79.  At law, there is no implied warranty that the property let is fit for the purpose of which it is taken : Elder v Auerbach [1950] 1 KB 359, cited in Fortune Global Development Limited v Shung Cheong Food Trading Limited, HCA1786/1999, unreported, 18 March 2002, per Deputy Judge Fung (as he then was), at para 62.  And I have already found that the plaintiff had not made the Representation as alleged.  Factually, there is no basis to imply the Fitness for User Clause.  I find that it is not implied.

80.  Taking out an insurance to cover his use and occupation of the Property is entirely a matter for the defendant.  I fail to see how the Fitness for Insurance Clause can be implied.  I find that it is not. 

D3.  Issue 3

81.  Mr Cheung accepted in his closing submissions that the plaintiff had a legal duty not to derogate from grant of the tenancy agreement.  And I so find.

D4.  Issue 4

82.  The answer to Issue 4 is “No”.

D5.  Issue 5

83.  The estoppel raised is in fact based on the Compliance Agreement and Rental Suspension Agreement.  It falls together with Issue 4.

D6.  Issue 6

84.  It is not in dispute, and I so find, that the plaintiff had fully complied with the Building Order as confirmed by the letter of the Buildings Department dated 3 April 2009.

85.  The Fire Safety Direction did not apply to the Property.  The question or compliance does not arise.

86.  In any event, the compliance or otherwise of the Building Order or the Fire Safety Direction does not really affect the occupation and use of the Property by the defendant as alleged.

D7.  Issue 7

87.  Based on my findings above, I find that the plaintiff was not in breach of the Quiet Enjoyment Clause or any of his obligations under the non-derogation of grant.

88.  Since I have found that the Compliance Agreement and the Rental Suspension Agreement simply did not exist, the question of breach of either of them by the plaintiff does not arise.

D8.  Issue 8

89.  The defendant cannot rely on the Assurance or the Fitness for User Clause.

90.  For the rest of his case, I refer to my findings in Part C2 above.  Based on those findings, I answer Issue 8 in the negative.

91.  I would add that in the course of their evidence, both the defendant and Ms Leung seemed to be contending that the plaintiff as landlord was not under a positive duty to repair the Property.  This is misconceived because the Tenancy Agreement did not so provide and at common law, a landlord is under no such duty to repair : see Halsbury’s

Laws of Hong Kong, Vol 17(1) at para 235.289.

D9.  Conclusion

92.  In sum, none of the points of raised by the defendant in support of his defence and counterclaim succeeds.

E.      DISPOSITIONS

93.  For the above reasons, I enter judgment for the plaintiff on :

(1) mesne profit between 23 March and 15 October 2009 in the sum of HK$1,280,000;

(2) government rent between 23 February and 15 October 2009 in the sum of HK$307.75; and

(3) rates for the G/F between 23 February 2009 and 15 October 2009 in the sum of HK$53,299.52

totaling HK$1,271,607.27, with interest at the judgment rate from the date of writ to the date of payment.

94.  I further order that the plaintiff be at liberty to apply the deposits of HK$540,000 against the judgment sum.

95.  I dismiss the defendant’s counterclaim in its entirety.

96.  Costs should follow the event.  I will order the defendant, by way of an order nisi, to pay the plaintiff the costs of the action, including all the costs reserved, to be taxed if not agreed.  The costs order nisi is to be made absolute 14 days after the handing down of this judgment.