XCHRX Realink Paging Ltd. v. Empire Champion Ltd.

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6705 OF 2000

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J U D G M E N T

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1. This is an application for summary judgment under Order 14 of the Rules of the District Court, together with an application under Order 18, Rule 19, to strike out the defence and counter-claim. There is no dispute, for reasons which will become clear presently, that the two applications stand or fall together.

2. The subject matter of the claim relates to a provisional agreement ("the agreement") dated 24 January last year, pursuant to which the defendant was to let certain shop premises at Kwun Tong to the plaintiff at a monthly rental of $62,800 for a two year term from 16 March 2000 to 15 March 2002.

3. Pursuant to clause 5 of the agreement, the plaintiff paid the initial deposit to the defendant in the sum of $31,400. Under clause 18(d) of the agreement, the defendant, as landlord, was required to obtain the mortgagee bank's consent in writing to the tenancy prior to the signing of the formal lease.

4. The agreement came with a floor plan of the shop and was marked "For identification purposes only" (see page 37 of the trial bundle). I was told that the Chinese characters on the plan say, "This plan is for reference only", which I take to have the same effect as 'for identification purposes only'. The plan includes, as part of the premises to be demised under the proposed lease, some steps leading up to and into the shop from the pavement. These steps are more clearly shown in a series of photographs starting at page 93 of the bundle.

5. In the course of finalising the terms of the tenancy agreement, the plaintiff was advised by its solicitors that the steps, which protruded onto the pavement, did not form part of the original conveyance to the defendant, but in fact amounted to an unauthorised addition to the premises. The advice that they received was that in such circumstances, the defendants were not in a position to lawfully let out all of the parts of the premises which they had represented they were in a position to do. Accordingly, for this and for another separate reason which I must consider in due course, the plaintiffs took the view that the defendants were in breach of the agreement to let what they had represented they would be letting, namely the shop together with the protruding steps, and so the plaintiffs refused to sign the tenancy agreement.

6. They now sue for the return of the initial deposit of $31,400 and for a further sum of $31,400 under clause 14 of the agreement which provides as follows:

"Should the landlord after receiving the initial deposit paid hereunder fail to let the said premises to the tenant in the manner contained herein, the landlord shall immediately refund the initial deposit to the tenant and shall compensate the tenant with a sum equivalent to the initial deposit and the tenant shall not take further action to claim the landlord for damages or to enforce its specific performance."

7. The first question to be determined relates to the state of the evidence as to whether the protrusion comprising the steps forms part of the original assignment to the defendants. In this regard, the plaintiff has put in a report (page 49 of the bundle) from Mr W K Poon, an authorised person, who has considered the approved plans from the Buildings Department and compared those plans with the plan put in with the agreement (see page 37). He has concluded in the final paragraph of his report that the steps form an illegal extension beyond the boundary of the premises.

8. Mr Dickson Pang who appears for the defendant, does not seek to take any serious issue with this view.

9. I am satisfied that Mr Poon's conclusion is correct and I propose to decide the matter on the basis of that conclusion.

10. Miss Chan for the plaintiff submits that when the plaintiff's representatives viewed the premises as presented to them before the agreement was signed, the clear representation was made by virtue of the appearance of the shop that what was being offered for lease were the shop premises and these steps that led up to the shop from the pavement. This was then confirmed by the plan at page 37. In view of the inability of the defendant to lawfully let the whole of the premises, it is submitted that it is in breach of the agreement and that consequently it has fallen foul of clause 14, so that there can be no defence for the present claim.

11. Mr Pang submits firstly, that as the plan (page 37) is marked "For identification purposes only", it cannot affect the position and no regard should be had to it. As to this, Ms Chan relies on the English Court of Appeal decision of Wiggington & Milner Limited v Winster Engineering Limited [1978] 3 All ER 436, where the court held that although a plan annexed to a conveyance and described as 'for the purpose of identification only' could not contradict anything which was explicit in the description of the parcels, it could be used to elucidate the identity of the property which the conveyance was intended to convey where it was not made explicit in the description of the parcels.

12. Ms Chan submits that as the agreement described the premises by virtue of what is in effect a postal address and no more, the plan was used to identify the precise area which was to be let and therefore should be referred to by me.

13. I agree. The effect of the pre-signature visit by the plaintiff's representatives, the layout of the premises and the absence of any disclaimer or clarification about the status of the steps, together with the plan which clearly shows the steps as being part of what was to be let, all amounts to a clear indication that the steps form part of the proposed tenancy. Given the illegal or unauthorised status of the protruding steps, the defendant cannot be heard to say that it could have properly let all that it was purporting to let. This amounts to a breach which entitles the plaintiff to withdraw, and it also triggers the provisions of clause 14.

14. The second limb of Mr Pang's case is based on the well-known proposition that a tenant is estopped from denying his landlord's title. He has drawn my attention to passages from Woodfall, Halsbury and a number of English decisions that bear out this well-known principle. Of course, this is well-established law, but that having been said, this principle cannot apply to the stage that the parties had arrived at in their contractual relations.

15. The cases referred to by Mr Pang all relate to a tenant in possession, or at the very least, to a concluded lease or an agreement to which the doctrine in Walsh v. Lonsdale might apply. This provisional agreement - and I emphasise provisional - is not in that category of agreement or lease to which the principle of tenancy by estoppel will apply. This agreement merely serves to demonstrate the parties serious intention to enter into a concluded lease and provides for contractual penalties for failure to enter into an agreed lease. That is the extent of it.

16. But, as to clause 14, Mr Pang also has a subsidiary point which is that the further amount of $31,400 is not enforceable because it is in the nature of a penalty rather than liquidated damages which would require to be a reasonable pre-estimate of any loss that the prospective tenant might suffer.

17. I am against Mr Pang. This is a perfectly sensible provision for further compensation to a prospective tenant when through no fault of his, the defendant landlord is unable to complete the tenancy. A tenant will reasonably be expected to have incurred expenses by instructing solicitors and even surveyors and builders or decorators prior to the completion of the lease. This further amount of compensation would cover that sort of cost. It is a modest amount, being half the monthly rent, and in any event, the clause also caps and restricts the scope of the landlord's own liability. It is a proper term which I am prepared to uphold.

18. Accordingly, for all these reasons there can be no arguable defence to this claim. There must be judgment to the plaintiff in the amount claimed.

19. Nevertheless, for the sake of completeness, I propose to consider the other issue raised by the plaintiff which is said to justify Order 14. The plaintiff submits that because the defendant failed to obtain the mortgagee's consent by 1 March 2000 when the lease was to be signed, that the defendant is to be held in further breach of the agreement which also justifies the course taken by the plaintiff. Central to this line of reasoning is the notion that time was of the essence of this agreement, that somehow 1 March was a magic date by which this agreement needed to be signed.

20. Mr Pang submits that time was not of the essence and alternatively that if it was, time was extended by virtue of an exchange of correspondence between the parties on 1 March.

21. The question of whether time is of the essence in a contract is considered generally in Part I of Chitty, Chapter. 22. At Chapter 22, paragraph 13, the position is said to be that time will be considered of the essence where the circumstances of the contract or the nature of the subject matter indicate that the fixed date must be exactly complied with.

22. In considering the overall situation, I have come to the view that although this was an important term, it was not, nor had it become, of the essence. Both parties were aware that the mortgagee's consent was being sought and that the terms of the lease needed to be made clear before the mortgagees would be prepared to give such consent. I am satisfied that the parties considered 1 March as a moveable feast, provided that any delay would not compromise the proposed start of the lease on 16 March. Consequently, this limb of the dispute would have been sufficiently arguable to have justified my allowing the matter to go to trial.

23. But as I have found that there can be no possible defence to the claim for the reasons that I have already given, the obverse must be true. The counter-claim, which relies on an alleged breach by the plaintiff, has no foundation. Consequently, the counter-claim must be struck out under Order 18, Rule 19, on the ground that it discloses no reasonable cause of action in the circumstances of this case.

24. So there must be judgment to the plaintiff in the amount claimed.

25. I see there is a claim for interest. I would have thought that interest should be at half the judgment rate from the date of the writ until today and thereafter at the judgment rate until payment together with an order for costs in favour of the plaintiff.