LAM IAN IAN v. LAU WAI KWONG

DCCJ 2540/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2540 OF 2014

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JUDGMENT

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1.  The defendant (“Lau”) was the tenant of a shop premises, who sublet the same to the plaintiff (“Lam”) to operate a light refreshment restaurant. Lam claims that she has validly rescinded the deal, and seeks to recoup what she has paid to Lau and expended on her business.

BACKGROUND

2.  Lau was at the material time the principal tenant of Shop 20, Ground Floor, Ho Shun King Building, No.3 Fung Yau Street South, Yuen Long, New Territories (“the Premises”), where he also owned the fixtures and fittings as well as furniture and equipment then in place for operating a light refreshment restaurant.  His tenancy was due to expire on 31 October 2016.  With the permission of the landlord, Lau offered the Premises for subletting and suitable business undertaking.

3.  On 6 November 2013, Lau advertised in the newspaper inviting offer to rent the Premises in the following terms:

“元朗旺舖讓超旺學校中心區新裝合飲食細牌連生財工具租金面議快者得 XXXXXXXX”[1].

Essentially, the Premises was advertised as, amongst others, newly decorated with business equipment, and suitable for light refreshment business licence.

4.  On 7 November 2013, Lam made a telephone enquiry with Lau in response to the advertisement.  The parties followed by meeting, and at the end of the day agreed that Lau would sublet and Lam would rent the Premises until 31 October 2016.  The rent of HK$38,000 would be payable on the 16^th day of every month; and a deposit equivalent to 3 months’ rent would be payable.  On the same day, Lam paid Lau a sum of HK$20,000 as initial deposit.  It was also agreed that Lam would take over the fixtures, fittings and business equipment at the price of HK$180,000.

5.  On 8 November 2013, the parties executed a standard Chinese tenancy agreement, which was backdated to 1 November 2013 in the above terms (“the Tenancy Agreement”).  Lam paid Lau the sum of HK$38,000 as rent for November 2013 and the balance of the rental deposit in the sum of HK$94,000.  For her undertaking of, amongst other things, all the fixtures and fittings, water as well as electricity supply accounts of the Premises, Lau received from Lam a cheque dated 15 November 2013 for that sum, and upon that, he drew up the following Chinese document:

“	協議書
本人劉偉光身份證：HXXXXXX[2]將元朗鳳攸南街3號好順景大厦20地下舖所有裝修設备、水電齐、包出食物環境衛生署小食牌照全部轉給林欣欣，身份證No: PXXXXXX[3] 頂手費用合計港幣壹拾捌萬圓正。特立此據為證一式二份各方必須遵守。
已收支票：永隆銀行018528。
立據人：劉偉光”

(“the Business Contract”).

6.  Essentially, the Chinese document recorded the Business Contract and the receipt of the cheque for the contractual sum of HK$180,000.  The document literally referred to the inclusion of the issuance of the light refreshment restaurant licence by the Food and Environmental Hygiene Department (“FEHD”).  The exact obligation of Lau in respect of the obtaining of such licence however is disputed.

7.  Lam then entered into possession of the Premises while steps were taken to obtain the light refreshment restaurant licence for her business.  Eventually Wang Yip Design & Engineering Co Ltd (“Wang Yip”) became the licensing agent in charge.

8.  Pending the obtaining of a licence, Lam commenced her business of a dumpling shop at the Premises in the name of “好景餃子專門店” (“the Shop”) on 21 November 2013.

9.  The FEHD issued its letter of no objection to Lam’s application for the licence for the Shop on 10 February 2014.  Some necessary work on the fire prevention installations at the Shop was carried out overnight between 27 and 28 March 2014.  However, Lam stopped paying rent on 16 April 2014 and ceased the operation of the Shop subsequently.  On 23 April 2014, Lam also attempted to return the keys to the Premises but Lau refused to accept.

10.  The parties ended up in the Lands Tribunal where Lau formally lodged his claim against Lam for rent in arrears and possession of the Premises (“LDPE 380/2014”).  By order dated 28 May 2014, the Tribunal ordered Lam to pay the rent in arrears up to 23 April 2014 and to deliver up vacant possession of the Premises, which she did.

11.  During the period when Lam operated the Shop, FEHD had issued summonses against Kam Ian Investment Limited (“KIIL”), which Lam used as the vehicle to register the business, for operating the same without a valid licence.  As a result, a total of HK$12,000 in fines had been imposed and settled by KIIL.

12.  On 2 July 2014, Lam commenced the present action.

13.  The above background is not disputed.

LAM’S CASE

14.  Lam’s pleaded case is essentially based on two instances of alleged misrepresentation on the part of Lau.  As far as the light refreshment restaurant licence is concerned, Lam says that on 7 November 2013, Lau made the following representation to her (“the 7 November Representation”):

(1)   The former subtenant of Premises had operated a dessert restaurant at the Premises under a valid licence from FEHD.

(2)   Lam might either continue such business or operate another type of restaurant at the Premises under the existing licence by a simple process of name transfer (from the previous subtenant) for a fee of HK$3,000.

(3)   Lam could commence operating a new light refreshment restaurant at the Premises with a valid licence on or before 16 November 2013.

15.  Allegedly relying on the above representation, Lam entered into the Tenancy Agreement and the Business Contract, and made the contractual payments mentioned above.  The representation was said to be false in that Lau was in fact not in possession or control of a valid licence at the time which could be transferred to her.  Nor could she commence business on or before 16 November 2013.  Lau pleaded fraudulent misrepresentation or alternatively entitlement to damages for misrepresentation.

16.  At the same time, it was said to be an express term of the Business Contract that Lau should transfer and/or hand over and/or procure the transfer of, among other things, the licence from the FEHD to her.  Lau also allegedly agreed with Lam that she would be able to commence her business with a valid licence on or before 16 November 2013.

17.  Lam’s pleaded case continues with the allegation that she indicated to Lau her intention to rescind the Tenancy Agreement and the Business Contract by mid-November 2013.  Allegedly in order to induce her not to do so, Lau made the following further representation to her on 19 November 2013 in relation to the licence (“the 19 November Representation”):

(1)   Lau could and would on behalf of Lam obtain or procure the grant of a valid licence on or before 21 November 2013.  Lau could commence her business with a valid licence on or before 21 November 2013.

(2)   If the licence was not yet obtained by the above date, Lau would nevertheless commence her business, and Lau would indemnify her against any breach of the law for doing so without a valid licence.

(3)   The process of obtaining a provisional licence could be completed in 30 days, and Lau would use his best endeavours to achieve that on behalf of Lam in 30 days. For such purpose, Lau would engage or procure the engagement of necessary competent consultants.

(4)   All the fees and expenses in relation to and occasioned by the application for the licence would be borne by Lau as part of the HK$180,000 paid pursuant to the Business Contract.

18.  Allegedly relying on the above further representation, Lam decided not to rescind the deal but commenced the business of the Shop.  Lam had expended on establishing and operating the Shop.  She or essentially her husband as referred to below had also attended the offices of FEHD for the purpose of obtaining the licence and made payment for such purpose.

19.  The 19 November Representation was said to be false in that Lau in fact could not and did not obtain the licence on or before 21 November 2013 or at all.  Nor did Lau obtain or procure the grant of a provisional licence on her behalf in 30 days (from 19 November 2013).    Lau allegedly failed to engage or procure the engagement of competent persons for applying for the licence.  Lam commenced business of the Shop on 21 November 2013 without a licence.  As a result, KIIL had been prosecuted and fined, but Lau has not indemnified her against such fines.  Nor has Lau borne all the fees and expenses in relation to and occasioned by the application for the licence.  Again the alleged further misrepresentation was said to have been made fraudulently or alternatively that she becomes entitled to damages.

20.  On the ground of both instances of alleged misrepresentation, Lam allegedly communicated to Lau during their meeting at the Shop on 23 April 2014 her rescission of the Tenancy Agreement and the Business Contract.  Alternatively the same were allegedly rescinded when she delivered up vacant possession of the Premises pursuant to the order of the Lands Tribunal in LDPE 380/2014 on 28 May 2014.

21.  By this action, Lam claims that she has validly rescinded the Tenancy Agreement and the Business Contract (or alternatively rescission of the same).  She also claims that the consideration for her payment of HK$180,000 under the Business Contract has wholly failed.  She claims damages representing all the money that she had paid to Lau and expended on her business in the total sum of HK$546,029.60.

LAU’S CASE

22.  According to Lau, he first sublet the Premises to Lam’s predecessor, who operated a dessert restaurant there.  Lau denied that he had made the 7 November Representation as to the existence or transfer of the licence.  He also denied having agreed with Lam as to the same as alleged.  He did however agree to assist Lam or her representative to apply for and obtain the licence from the FEHD.  There was no representation or agreement about a time limit, but in the event that Lam was caught operating the Shop without a valid licence during the term of the sub-tenancy, Lau undertook to bear half of the resultant costs, fines and penalties.

23.  Lau went on to plead that on about 11 November 2013, he introduced Mr So (“So”) of Wang Yip to Lam and her husband, Cheung Fat Kam (“Cheung”), with a view to assisting them to obtain the necessary licence for their business at the Premises.  Wang Yip advised the party that the application for a licence from the FEHD by the former subtenant of Lau was in progress, and it would save time if that person agreed to transfer the pending application to Lam.  Eventually the former subtenant could not be contacted.  This brought about the meeting of the parties and Wang Yip at the Premises on 19 November 2013.  It was then resolved to lodge an application afresh for a licence from the FEHD on behalf of Lam.

24.  The application for the licence then took the following turns:

(1)   An appointment was made for the parties to attend the FEHD office in Tai Po on 20 November 2013 for the submission of the application.  The appointment was cancelled at the request of Cheung.

(2)   On 29 November 2013, Wang Yip’s representative Mr Chan (“Chan”) attended the FEHD office to submit the application, but the same was rejected on the ground that the application was taken out under the name of Cheung whereas the tenant of the Premises under the Tenancy Agreement was Lam.  An authorisation letter would be necessary, which Chan subsequently drafted at Lam’s request.

(3)   The FEHD had to repeatedly request the former subtenant to withdraw the application in progress.

(4)   It was only on 14 May 2014 when the provisional licence for the Shop was granted.  However Lam refused to attend the FEHD office with Lau and Wang Yip for completing the procedure for obtaining the licence.

25.  As to the fines for operating the Shop without a valid licence, Lau contends that he had not received such summonses or notices from Lam until after the present action.  However, in line with his case that he had agreed to share half of those fines as proved, he admitted through counsel at the outset of this trial his readiness for judgment to be entered against him to such extent.  He put forward no counterclaim.

THE DISPUTE

26.  The major dispute lies in what were said or agreed in respect of the FEHD licence for Lam to operate the Shop at the Premises, and whether Lau was guilty of misrepresentation or breach of the agreement in relation to the same.  Depending on the answers, there are the issues of the claim for rescission or damages for misrepresentation as well as that for total failure of consideration.

THE EVIDENCE

27.  Besides themselves, Lam called her husband, Cheung, as witness while Lau called So and Chan of Wang Yip to testify.

28.  According to Cheung, he was a dim sum master in a Chinese restaurant.  The evidence revealed that he has had the experience of operating a 2-storey Chinese restaurant business, and Lam has had the experience of helping out at the restaurant, less than a decade before the business venture in the present case.  That perhaps lends weight to the evidence of Lam and Cheung in respect of their concern about the licence that would be necessary for their business at the Premises.  At the same time, that also serves to show that the couple were not entirely strangers to operating restaurant business.

29.  There is no dispute that Lam responded to Lau’s advertisement by making the telephone enquiry, and as result, she went with her sister-in-law to meet with Lau at the Premises on 7 November 2013.  In her evidence, Lam did not hide her fondness for the Premises upon viewing it then.  Cheung arrived subsequently.  There is dispute as to whether he did so before or after Lam had already committed to rent the Premises and made the payment of the initial deposit.  But both were adamant that Lau was specifically asked about the existence of a valid restaurant licence for operation at the Premises.

30.  According to them, Lau was said to have referred to a letter from the FEHD regarding a licence which could be collected.  This was never mentioned in the statements of either Lam or Cheung.  This was at variance with Lam’s pleaded case, which suggested that Lau effectively warranted the existence of the licence which could and would be transferred.  When Cheung gave evidence, he seemed to be less certain about whether such deadline was agreed upon but recalled that it had to be as soon as possible and in any event before the Shop commenced business on 21 November 2013.  This was at variance with Lam’s pleaded case that Lau had promised to transfer the licence to Lam on or before 16 April 2014.

31.  The parties undisputedly entered into the Tenancy Agreement and the Business Contract on 8 November 2013.  The cheque for the contractual sum of HK$180,000 under the Business Contract was in fact post-dated to 15 November 2013.  Whilst Cheung, according to him, was so concerned that he specifically requested Lau to put down into writing his agreement, and Lau indeed drew up the Chinese document mentioned above as a written record of the Business Contract upon receipt of Lam’s cheque, the deadline for the transfer of the licence, as alleged or at all, was nowhere mentioned in the document.  The explanation given by Cheung in court was that he was careless.  That went contrary to his emphasizing evidence in this respect by his statement.  As to Lam, she kept repeating her fondness for the Premises and suggested that she cared not to read the document and simply had trust in Lau.  Such evidence from neither of them sounds appealing.

32.  According to Lau, he had first rented the Premises and operated a store there for over a decade.  In 2012, he converted the Premises with a view to operating a light refreshment restaurant.  Due to the sudden health problem of his wife, whom he had counted on for assistance in the new business venture, the couple decided to halt the plan.  By then, the interior decoration of the Premises had just been completed, but no licence had ever been applied for.  Nor had the intended business ever commenced.  Instead, with the permission of the landlord, Lau started to sublet the Premises.  It was sublet to a Ms So to operate a dessert shop.  When that sub-tenancy ended in October 2013, Lau took over the fittings and business equipment added by that subtenant at HK$50,000, and advertised the Premises for subletting.  Hence the advertisement mentioned earlier.

33.  According to Lau, he never had a licence from the FEHD in respect of the Premises.  Nor had he obtained one from Ms So, the outgoing subtenant.  Hence he never made the 7 November Representation, but did agree to assist Lam in obtaining the licence.  Lau always admitted that he agreed to procure and to pay for the licence for Lam’s business operation at the Premises.  He only denied having represented or warranted as to the deadline for that as Lam alleged.  At the request of Lam’s side, Lau also agreed to share half of the costs or fines occasioned by any prosecution for the operation of her intended business at the Premises pending the issuance of the licence.

34.  Wang Yip entered the picture on 11 November 2013.  What happened was that when the party of Lau, Lam and Cheung met at the Premises on that day, Lau noticed an advertisement at the door of the Premises apparently placed by Wang Yip.  Lau suggested and the rest of the party agreed to make enquiry with Wang Yip about licence application.  Pursuant to that, So of Wang Yip was contacted and later turned up to meet with the party at the Premises.  There and then So revealed that it was his company which had handled the licence application on behalf of Ms So, the former subtenant of Lau.  This was confirmed in court by the parties to be how things had happened that day.  Both Lau and So confirmed that they had never known or met each other before then.  Nor had Lau known that Ms So had applied for a licence through Wang Yip.  Lau’s plea that he introduced Wang Yip to Lam and Cheung to handle the licence matter therefore has to be understood in that light.

35.  It was on that occasion when So advised that the application for licence by the former subtenant of Lau, Ms So, was pending; and it would save time for Lam’s purpose if Ms So’s consent to transfer the application to Lam could be obtained.  The party agreed to proceed on such basis, and Lau also paid Wang Yip the deposit for its engagement.  In those circumstances, even assuming that there were discussion in respect of the time frame, it would have been more likely to be projection or estimation than warranty, as the parties concerned well knew that it would be subject to securing Ms So’s consent.

36.  So subsequently confirmed that despite attempts, Ms So could not be contacted, and the original plan could not proceed.  Lam confirmed such understanding then.  This brought about the meeting on 19 November 2013.

37.  Lam’s case is that due to the failure of Lau to live up to his words in the 7 November Representation, she had formed, and even communicated to Lau, the intention to rescind the deal, if the 16 November deadline was not met.  Had that been the case, one wonders why she would have done nothing to stop her post-dated cheque for the contractual sum of HK$180,000 under the Business Contract.  No satisfactory explanation was tendered in court.  The suggestion by her or Cheung that they somehow had no choice because they were bound by the agreements with Lau makes no sense.  It was they who were complaining that Lau failed to do what he had allegedly agreed to do.

38.  The fact was that Lam proceeded after 16 April 2013.  That, she alleged, was the result of the 19 November Representation.  That was also when So of Wang Yip reported that due to the failure to secure the agreement of Ms So under the original plan, an application would have to be lodged afresh for the licence by Lam’s side.  Both Lam and Cheung confirmed that in court.  On that basis, the alleged terms of the 19 November Representation become odd in that Lau was said to have warranted on the one hand that the licence would be obtained or procured to be granted by 21 November 2013 (which would be 2 days later) while on the other hand that he would use his best endeavours to obtain the licence within the expected 30-day period (from 19 November 2013).  In court, Lam and Cheung accepted that it was then proposed to meet up at the FEHD office in Tai Po on the following day but was postponed at the request of Cheung.  Lau, Cheung and Chan of Wang Yip attended that office only later in the month to submit the application.  That makes the allegation of warranty as to the obtaining of the licence by 21 November 2013 even more incredible.

39.  According to Chan, the FEHD advised that the name of the applicant was different from Lam being the tenant of the Premises.  Written authorisation would have to be submitted to address that.  That Chan had subsequently prepared at Lam’s request.  Meanwhile the new application in respect of the same business premises could not be processed while the application by Ms So, the former subtenant of Lau, was still pending.  Lam confirmed in court she had been so explained to, only that she had no idea how long she had to wait.  Chan explained in his evidence that unless Miss So cancelled the pending application, it would have to take time before the cancellation would be deemed by FEHD.  With the intervening Christmas and New Year holiday then, the application process was delayed by about a month for that reason.

40.  While Lam stated in confirmation of the involvement of her and Cheung and their compliance with the requests of Wang Yip in the licence application process, she was silent on the details.  The evidence shows that the FEHD issued a letter of no objection to Lam’s application dated 10 February 2014.  It was only in court when Lam said that she was actually delighted by that development in the licence application.  According to Chan, steps had to be taken in accordance with the requirements set out in the letter, including the instruction of authorised persons to inspect and to certify the various aspects of compliance of the Shop for licensed operation.  She had also drawn a cheque payable to the Government on account of the fees for collecting the licence in due course.

41.  Chan explained that the recent change in the fire regulations entailed works to be done to the facilities and installations at the Premises pursuant to the advice of the fire facility contractor.  According to Lau, the work was arranged to be carried out on 22 March 2014 and, at the request of Lam, he agreed to assist by personally watching the execution of such work.  However Lam requested to postpone the work to weekend with a view to avoiding the busy days of the Shop.  The work was carried out overnight from 27 to 28 March 2014 in the presence of Lau, who also paid the contractor for that.  That led us to the end of March 2014.

42.  However Lam stopped paying rent on 16 April 2014.  According to Lau, Lam had conversed with him earlier in March 2014 expressing concern about the term of the tenancy and the business performance of the Shop.  Whether or not that was true, Lam’s own pleading contained no account for such decision.  According to her statement, such decision was somehow triggered by the flood after the ‘black’ rainstorm on 30 March 2014, and she then left a telephone message with Lau that she would stop paying rent if the licence was not obtained by 16 April 2014, which was when the rent for the following month would become due.  It is not readily apparent how the exceptional rain and the flood would trigger her thought about the licence and her demand.  As mentioned, things were indisputably still moving on in gear towards the obtaining of the licence, and her relationship with Lau, according to her in court, remained good in late March 2014.

43.  There is no dispute that when the parties met at the Shop on 23 April 2014, Lam attempted to surrender the tenancy by returning the keys to the Premises to Lau, who refused to accept them.  Lau commenced proceedings in the Lands Tribunal later in the same month.  Notwithstanding that, Lau apparently had not given up the licence application.  After all, he had spent tens of thousands for such purpose.  The evidence shows that all the necessary certifications of compliance were ready in May 2014.  According to Chan, he had also prepared all the remaining supplementary documents to be lodged pursuant to the advice of the FEHD.  Lau also understood from Chan that upon lodging of those documents, the provisional licence could be collected.  But Cheung had to sign those documents.  Hence an appointment for the parties to meet at the FEHD office on 14 May 2014.

44.  On that day, Lau and Chan turned up as appointed.  Lau had called and left a telephone message with Lam while Chan had also called Cheung.  The call histories of the relevant telephone numbers evidence such attempts.  Cheung never responded while Lam telephoned Lau later that night.  Lam reiterated her decision to cease the business of the Shop and thus the tenancy.  On 21 May 2014, Wang Yip put on record that the application for the licence would be shelved until Cheung perfected the documentation.  That explained why Lam’s cheque payable to the Government for collecting the provisional licence mentioned above was never presented.

45.  Then came the hearing at the Lands Tribunal on 28 May 2014.  By then, the stance of Lam should be clear.  As recorded in the transcript of the proceeding in that hearing, the Tribunal, after ascertaining the positions of the parties, ordered Lam to deliver up vacant possession of the Premises and to pay Lau the rent in arrears up to 23 April 2014.  After recovering possession, Lau has sublet the Premises but at a lower rent than before, as evidenced by the relevant tenancy agreements.  According to him, he no longer entered into contract like the Business Contract with the new subtenants.

46.  By their statements, Lam and Cheung suggested that Wang Yip was not competent in handling their licence application.  Against the above background, they could only be complaining about how Wang Yip had handled the fresh application for the licence since 19 November 2013.  So and Chan were cross examined by reference to the materials published by the FEHD, which set out the general procedure for application for such licence.  The time frame projected for a provisional licence to be issued was about 5 weeks from the lodging of the application for the licence.  On this basis, it was suggested that the time taken by Wang Yip in the present case far exceeded such time and was unreasonable.

47.  To begin with, the FEHD publications must be informative of the time that an application generally takes.  So explained according to his experience that the time taken varied from case to case, and could exceed 5 weeks and even take up to half a year.  By his statement and in court, Chan acknowledged that the present case was a little more complex in that it had to take a number of turns in the progress, as discussed above.

48.  In the circumstances, unless the steps taken (or not taken) or the delay per se were abundantly blatant, the court would need actual, and probably expert, evidence in support before condemning what happened in the present case as wholly out of scale.  There was no such positive case in Lam’s pleading.  Nor was there such evidence.

49.  The overview of the witnesses is this.  Lam and Cheung struck me as highly subjective and unreliable in their account of the key events.  Lau and his witnesses were very much on the contrary, and impressed me as being coherent and reliable.  In case of differences between the two parties, I prefer the version of the key events according to Lau and his witnesses.

BREACH OR RESCISSION

50.  The problem of Lam’s case is more fundamental than mere reliability of her side’s evidence of the key events.  Even on the basis of her case, her right to rescind or to terminate the Tenancy Agreement and the Business Contract is doubtful.

51.  Whether or not there was the 7 November Representation, and the alleged falsity, the undeniable fact was that Lam decided to continue the tenancy and the business undertaking after the alleged deadline of transfer of licence of 16 November 2013 expired.  Whether or not there was the 19 November Representation, and the alleged further misrepresentation, the undeniable fact was that Lam continued the tenancy and the business undertaking after the alleged deadline for the obtaining of the provisional licence had expired, be it 21 November 2013 or 30 day from 19 November 2013.

52.  According to Lam, she felt delighted about the issuance of the letter of no objection by the FEHD in February 2014.  In early March 2014, Lam still made payment on account of collection of the provisional licence.  In late March 2014, Lam still liaised with Lau in carrying out the fire facility and installation work at the Shop pursuant to the letter of no objection.  She requested and Lau also agreed to stay at the Premises to watch the execution of the work overnight. Lam must have by conduct affirmed both the Tenancy Agreement and the Business Contract with Lau by then: see Chitty on Contracts (32^nd ed) Vol.1 at §24-003.

53.  In the circumstances, unless Lam sent an ultimatum and thus again making the time for the obtaining of a valid (provisional) licence of essence, the right to terminate the Tenancy Agreement on 23 April 2014 on the ground of repudiation did not arise.  In her statement of claim, there was no mention about such ultimatum whatsoever.  In her statement, there was mention of the ‘Black’ rainstorm and flood at the Shop on 30 March 2014, which somehow triggered her telephone message to Lau that she would stop paying rent if the licence was not available by 16 April 2014.  Literally that concerned the obligation to pay rent, and not termination of either the Tenancy Agreement or the Business Contract.  It was only during the trial when she for the first time suggested that what she indicated to Lau was to terminate the tenancy altogether if the licence was not available by 16 April 2014.  One cannot, and I do not, accept key assertion and evidence of this sort so made and adduced so lightly.  The circumstances therefore were such that Lam was not entitled to treat the failure of Lau to obtain the licence on her behalf by 23 April 2014 as repudiatory of the Business Contract.

54.  Likewise, in the context of rescission, once Lam indicated her intention to proceed with the Tenancy Agreement and the Business Contract, and indeed acted accordingly and inconsistent with an intention to rescind, she became bound by the deal. Any previous alleged misrepresentation, which would have afforded her the right to rescind, had been spent: see Chitty on Contracts at §§7-131; 7-132.  By affirming and performing the deal on the part of both parties, Lam is also faced with the added difficulty that the parties practically could not be restored to their pre-contractual position.  Lam has lost her right to seek rescission of the Tenancy Agreement or the Business Contract.

TOTAL FAILURE OF CONSIDERATION

55.  The plea of total failure of consideration is confined to the Business Contract. This followed as a result of the alleged misrepresentation.  Whilst the contents of the alleged representation were also pleaded as what were agreed between the parties, there was no actual plea of repudiation or consequential termination of the Business Contract alternative to rescission.

56.  The test of total failure of consideration is whether the promisor has performed any part of the contractual obligations in respect of which the consideration is due and paid: see Chitty on Contracts at §29-057.  In the circumstances of the present case, the Tenancy Agreement and the Business Contract for the business venture of Lam could not be considered in isolation.

57.  The undeniable fact was that Lam took possession of the Premises, did work to it and operated the Shop there from November 2013 to 23 April 2014.  As far as the Tenancy Agreement was concerned, the consideration in return for Lam’s rental payment during the period has not failed at all.

58.  In consideration of her payment of HK$180,000, Lam was to be provided with not just the licence for the business but also the fixtures, fittings, furniture, fittings and other business equipment.  Except for the licence which was yet to be obtained by the time when the Business Contract was terminated, there is no allegation that any of the others were not provided.  The undeniable fact was that Lam made use of them to operate the business of the Shop for months until late April 2014.  The consideration under the Business Contract likewise has hardly failed.

DAMAGES

59.  In the circumstances, even assuming that Lam were entitled to her claim, be it the alleged misrepresentation or breach of contract, she would have been entitled to consequential damages only.  Here she hits another rock in the way.

60.  Damages, be it for misrepresentation or breach of contract, are compensatory.  The damages that Lam now claims represent all those she had paid to Lau and expended on her business, namely (as agreed subject to liability):

Tenancy deposit	HK$114,000.00
Rent paid	HK$180,133.50
Consideration under the Business Contract	HK$180,000.00
Renovation	HK$ 20,996.32
Equipment and furniture	HK$ 21,144.78
Other restaurant related expenses	HK$ 15,766.00
Fines	HK$ 12,000.00

61.  The tenancy deposit will be separately discussed below.  As to the others, they were not rendered futile as a result of the alleged misrepresentation or breach on the part of Lau.  Lam admitted that she operated the business of the Shop until late April 2014.  Not counting her own remuneration, she admitted the business managed to produce a net balance between income and expenditure.  The business was thus viable.   Recovery of all she had expended on her business would effectively enable her to walk away with a windfall cost-free.  This cannot be right.

62.  The renovation, equipment and furniture as well as the restaurant related expenses are claimed also on the basis that they were left at the Premises.  As mentioned, Lam returned the keys to the Premises on 23 April 2014.  Lau refused to accept but commenced proceedings in the Lands Tribunal later in the same month for rent in arrears and possession of the Premises.  There was nothing sinister about such stance of Lau.  Lau was under no obligation to accept the return of the keys unless it amounted to delivery of vacant possession of the Premises[4]. Lam’s claim now supports that Lau had reason not to take the Premises to be in a state of vacant possession when Lam tried to return the keys to Lau.  In the circumstances, Lau was entitled to recover vacant possession of the Premises by the order of the court.

63.  During the proceedings in the Lands Tribunal on 28 May 2014, Lau indeed expressed his concern about accepting the keys to the Premises in such a state on 23 April 2014.  Apparently the presiding Deputy Judge explained the same during the hearing[5].  It was upon such explanation and question by the Tribunal that Lam confirmed she no longer wanted those items in the Premises[6]. Instead of Lam reserving any right to claim against Lau for those items, it would be for Lau to consider any claim against her for, amongst other things, the cost of removal of those abandoned items in the Premises.  The Tribunal indeed cared to explain that to the parties.  It was upon Lam’s understanding of the situation that the Tribunal made the order.  In line with that, in ordering the payment of rent in arrears up to 23 April 2015 and no mesne profits thereafter, the Tribunal could only be acting on the basis that Lam in fact ceased to occupy the Premises, whether by herself or her belongings, since that date.  In the circumstances, Lam must be estopped from denying that and purporting to claim for the cost of her belongings left at the Premises in the present case.

64.  As to the fines, it has always been admitted by Lau that he would bear half of them as a result of Lam’s operation of the Shop without a valid licence.  However he had never received any document in relation to such fines until after the present action.  It should be noted that in her pleading, Lam was still claiming damages representing the fines in the sum of HK$7,000 “and to be assessed”.

THE TENANCY DEPOSIT

65.  Albeit claimed, this was categorised by those acting for Lam as merely one of the items of damages claimed on the same basis as the others.  Lau, who retains the sum, also put forward no case on retention or disposal of this sum or any part of it.

66.  By nature, a tenancy deposit was paid and retained to secure the due performance of the tenancy agreement by the tenant.  Subject to that, the sum should be returnable by the landlord to the tenant upon the expiration or termination of the tenancy. This did not seem to differ in the present case.  The Tenancy Agreement contained the following terms:

(1)   In case of premature termination of the tenancy, the tenant should compensate the landlord for the rent payable under the remainder of the term of the tenancy.  In case the tenant sought to terminate the tenancy during the first year of the term, the landlord should be entitled to deduct 1 month’s tenancy deposit as compensation. (clause 1)

(2)   In case the tenant defaulted in paying rent or performing its obligations as agreed, the landlord should be entitled to terminate the agreement and to re-let the premises as well as to claim any rent in arrears. (Clause 3)

(3)   Upon the tenant vacating from the premises, the tenancy deposit should be returned to the tenant interest-free.  In case any rent or expenses payable by the tenant was let in arrears, the landlord should be entitled to satisfy the same by deducting from the tenancy deposit.  The tenancy deposit should not be used to set off any rental payment. (Clause 5).

67.  The documents show that Lam had settled the rent in arrears through the Lands Tribunal as directed.  She could have sought to recover the tenancy deposit pursuant to the above terms of the Tenancy Agreement.  But she has consciously confined her claim to the basis as pleaded and made no reference to such contractual basis.  Nor was such reference made in her evidence by her statement.  Failing on the pleaded basis, as I find, she has no alternative basis for the recovery of the same.

68.  Lau had actually been informed by the Presiding Deputy Judge of the Lands Tribunal during the proceedings on 28 May 2014 in LDPE 380/2014 of his right to consider claim against Lam, if any, subsequently in the court herein.  Notwithstanding Lam’s claim to recover the tenancy deposit, Lau never sought to exercise his right to deduct or retain any part of it under the Tenancy Agreement by way of counterclaim.  His entitlement to retain the sum is therefore untested as a matter of law and fact.

69.  Both parties are legally represented.  It is not for this court to take upon itself an attempt to resolve this issue on the basis of perceived justice, when there is to begin with no proper, if at all, formulation of the case to found the arguments in respect of this issue.

CONCLUSION AND ORDER

70.  Judgment is entered against Lau in the sum of HK$6,000 with interest from today until payment at the judgment rate.  Except for that, the claim is dismissed.

71.  There is no real success on the part of Lam in her claim.  It is only fair that she should bear Lau’s costs of this action, including any costs reserved.  Costs shall be taxed, if not agreed.  For the avoidance of doubt, the engagement of counsel is certified.  This costs order is nisi, and will become absolute in the absence of application in 14 days to vary.

72.  I thank counsel for their assistance.