LINKMAX ENTERPRISE LTD v. CHO SHU PUI AND OTHERS

DCMP 423/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 423 OF 2008

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J U D G M E N T

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1.  The Plaintiff (Linkmax) purchased the captioned property in North Point, Hong Kong in 2007.  It commenced originating proceedings for, among other things, possession of the property against Cho and all the persons who may be occupying the property.  It claims that the 1^st Defendant (Cho) is a trespasser of the property.    Cho contends that he is the lawful tenant of the property and that Linkmax acquired the property subject to his tenancy.  No other occupant has appeared in these proceedings.  The dispute was directed to be resolved by way of trial.

BACKGROUND

2.  Lau used to be the owner of the property.  By a provisional agreement dated 8 August and a formal agreement dated 17 August 2007, Lau agreed to sell the property to Vantage Inc. Limited.  Vantage in turn entered into a sub-sale agreement dated 25 October 2007 whereby it agreed to sell the property to Linkmax.

3.  The fact that the property had an existing tenant was disclosed to the purchasers.  The provisional agreement between Lau and Vantage (clauses 7), the formal agreement between them (clauses 21, 25, 32 and the 4^th Schedule) and the sub-sale agreement between Vantage and Linkmax (clause 17 and the 4^th Schedule) all stipulated that the property was sold subject to the existing tenancy in respect of which Lau was the landlord.  These agreements recorded that the tenant was DNA Autoworks Limited (DNA) and this was a monthly tenancy at the rent of HK$14,500 (inclusive of rates, government rent and management fee).

4.  Completion of the sale and purchase, with Vantage acting as the confirmor, took place in November 2007.  By a deed of indemnity, Linkmax acknowledged receipt of the rental deposit and covenanted to refund the deposit to the tenant if and when the same should become payable.

5.  By letter dated 9 November 2007, Linkmax’s then solicitors informed DNA of the change of ownership of the property and requested DNA to pay all future rent and other sums payable to the account of Linkmax with effect from 3 December 2007.  3 days later, the solicitors wrote to DNA again.   This time, they gave notice to terminate the tenancy on 3 January 2008.

6.  DNA ran the business of automobile repair and maintenance services under the name of “dna autoworks” at the property.  Cho and Liang were the shareholders and directors of DNA.  DNA commenced business in May 2002.  Lau and DNA entered into a written tenancy agreement in the same month.  Cho signed the agreement for and on behalf of DNA.  The rent was HK$16,500 (exclusive of rates and management fee).  The tenancy was for a term of 3 years from 3 July 2002 to 2 July 2005.  The fact was that the tenancy has somehow continued since the term expired in July 2005.

7.  There is no dispute as to the above background.

ISSUES

8.  Linkmax contends, and Lau confirms, that this has become a monthly tenancy with DNA after the original term expired in 2005.  The tenancy was therefore subject to termination by not less than 1 month’s notice.

9.  Cho contends that since August 2005, he has become the direct tenant of Lau by virtue of an oral tenancy agreement for a fixed term of 2 years until July 2007.  In July 2007, it was orally agreed between him and Lau that the term would be extended for another 2 years until July 2009.

10.  Apparently Cho also contends that the oral tenancy was reduced in and evidenced by writing.  This brought about parties’ argument as to whether the written document is enforceable in the absence of registration.

THE TENANT AND THE TERM OF TENANCY

Kwan

11.  Kwan, director of Linkmax, explained how his company came to purchase the property and what Linkmax did after the purchase.  His evidence does not appear to be controversial.  He produced a photograph taken by Linkmax’s solicitors in early 2008, showing that the property was still carrying on business under the sign of “dna autoworks”.  There is also no dispute about this fact.

Lau

12.  The person privy to the tenancy arrangement was Lau.  Though Lau’s affirmation had already been filed, Linkmax still had him summonsed by a subpoena to testify.

13.  According to Lau, during the original 3-year term of the tenancy, the rent had at one stage been reduced to HK$13,500.  That remained to be the actual rent when the original term of the tenancy expired in July 2005.  Despite negotiation, Lau and DNA failed to execute the draft written agreement for another new term.  Notwithstanding that, Lau continued to receive rent of HK$13,500 every month as before.

14.  Lau said he was prepared to treat this as a continuation of the tenancy but only on a monthly basis.  He had such understanding as a result of consulting the District Office about the legal position upon DNA’s refusal to sign the draft written tenancy agreement in August 2005.  He thought that so long as he received rent every month, he was prepared to let the tenancy continue for not less than another 2 years, the term that DNA requested for.

15.  In or about mid-June 2007, Lau thought 2 years had passed and therefore requested for increase in the rent for the property, if the tenancy should continue.  Lau proposed HK$15,000.  Cho offered HK$14,500 which Lau accepted.  The tenancy therefore continued.  According to Lau, there was no specific discussion of the term and he therefore believed that this continued to be monthly tenancy.  This explained why he stipulated that the tenancy was a monthly one when Lau sold the shop to Vantage in August 2007.

Cho

16.  According to Cho, in August 2005, Lau and Liang, the other director and shareholder of DNA, had a dispute relating to the tenancy.  Liang left the business.  Cho then personally took up the tenancy of the property to run for a term of 2 years from July 2005 until July 2007 at the rent of HK$13,500.

17.  Prior to the end of the above term, Cho and Lau orally agreed that the tenancy would be renewed for another 2-year term from July 2007 to July 2009 at the monthly rent of HK$14,500.  When he received notices of the change of ownership of the property in November 2007, Cho wrote to Linkmax’s solicitors on 1 December 2007 stating his position.

The receipts

18.  Cho placed heavy reliance on various receipts for payment of rent that Lau signed, appearing to acknowledge that Cho was at all material times since 2005 his tenant.  A typical receipt would consist of 3 parts: a photocopy of Cho’s cheque for that month’s rental payment at the top; a photocopy of the bank slip for Cho’s depositing his cheque into Lau’s bank account at the bottom; and some handwritten acknowledgement in the space in between.  There is no dispute that the handwritten acknowledgements were invariably prepared by Cho or on his behalf.  Lau also admitted that he signed these receipts.

19.  Among the receipts, there was one dated 17 August 2007 (the 17 August receipt).  The handwritten acknowledgement in this receipt was in the following terms:

“業主劉昆海先生，請簽收租客曹樹培先生交來支票，此支票乃繳付新定為期2年租約之2007年8月份清華街15號地下的新租金。”

20.  On its face, apart from describing Cho as the tenant, the 17 August receipt also stated that the cheque (copied onto that receipt) was for the payment of rent for August 2007 under a new 2-year term of the tenancy.  This became the key receipt that Cho relies on in this case.

21.  Lau said that he never issued receipts for the rental payments.  But at Cho’s requests, he had visited the property every now and then to sign these documents prepared by Cho and for Cho’s purpose.  Normally he would be asked to sign various sheets of paper at the same time.  He did not have his mind to these papers and did not really peruse them before signing.

22.  Regarding the 17 August receipt, Lau alleged that the handwritten acknowledgement therein did not exist when he signed it.  The writings appearing on that receipt were allegedly added afterwards.

Discussion

23.  Regarding how the 17 August receipt came to exist, Cho called Tsang, his friend, as a witness.  Essentially, Tsang testified that it was he who wrote the acknowledgement part in the 17 August receipt.  Apart from this aspect, Tsang had no real involvement in the tenancy matter and I do not consider him to be in a position to corroborate the truth of what Cho instructed him to write on that receipt.  Tsang’s evidence also would not help in ascertaining how Lau perceived that receipt and its significance when he signed it.

24.  It was pointed out that not only was Tsang’s existence and his involvement not revealed until his statement was filed 9 days prior to this trial, his evidence also apparently contradicts Cho’s statement (paras.3).  Nevertheless, after hearing the evidence, I am satisfied that the acknowledgement part of the 17 August receipt probably already existed when Lau signed it.

25.  My ruling against Lau’s allegation about the addition of the acknowledgement part on the 17 August receipt only after he signed it is not to be construed as my rejection of Lau’s case.  Considering all the circumstances, I actually prefer Lau’s case.  I shall explain.

26.  If Cho’s case were accepted, this would mean two things:  First, Lau would have knowingly misrepresented to Vantage and subsequently to Linkmax about the identity of the tenant and the term of the tenancy; and secondly, Lau knowingly signed the 17 August receipt to confirm the 2-year term of tenancy commencing in July 2007.

27.  I see no reason for Lau to effectively misrepresent to Vantage or Linkmax about the identity of the tenant and the term of the tenancy, in view of the fact that he did disclose the existence of tenancy, subject to which the property would be sold.  This is not for this court to speculate, without any evidential basis, whether Lau might have expected to gain anything out of such misrepresentation.

28.  I find that Lau signed the 17 August receipt, among others, in September or October 2007.  In that case, Lau knew too well by then that he had already signed the formal sale and purchase agreement with Vantage (also dated 17 August 2007).  It was most unlikely that Lau would sign the receipt knowing and intending the same to be a written confirmation of a new 2-year term tenancy commencing in July 2007 so as to effectively contradict himself under the terms of the sale and purchase agreement.

29.  I accept Lau’s evidence as to how he came to sign these receipts.  This was effectively a routine that Lau would carry out every now and then at the requests of Cho.  Even Ms Lee for Cho submitted this was a regular practice.  He signed the 17 August receipt as he signed the others prior to that.  I do not find that Lau was aware or intended the 17 August receipt to be any more than just another receipt for payment of rent for another month.

30.  Cho referred to a cheque and a receipt for rental payment for July 2005 issued by DNA with a view to distinguishing the form and practice before and after he allegedly took over the tenancy.  But no other cheque or receipt like this one has been disclosed.  In fact, no receipt since August 2005 until about the time when Cho took out his own business registration in 2006 has been disclosed.

31.  More importantly, the receipts were not for Lau’s purpose or keeping.  I do not doubt that he signed the receipts, including the 17 August receipt, without caring to peruse it in the circumstances.  In fact, neither Cho nor Lau noticed that the receipt dated 17 July 2007 still recorded the rental amount to be HK$13,500, though parties had agreed by then that the new rent of HK$14,500 took effect from that month.  It is common ground that this necessitated Lau’s subsequent request for Cho to make up the shortfall of HK$1,000 which Cho did by way of cash.

32.  I believe Lau never considered Cho personally to be his tenant.  On the one hand, Liang was said to have departed from DNA’s business in August 2005.  On the other hand, Cho in fact sought his personal business registration purportedly to run the garage business by himself only in May 2006.  Yet, according to DNA’s business registration record, the company was “dissolved” only in September 2007.  The fact is that in any event, the garage was at all material times still carrying on business under the sign of “dna autoworks”.  This was what was apparent to Lau and Linkmax.

33.  Since August 2005 when DNA refused to sign the draft written tenancy agreement and his making enquiries with the District Office, Lau always perceived that any tenancy would continue but subject to termination by notice of not less than 1 month.  But he was prepared to continue the tenancy on such basis and his concern was to be able to receive rent.  Seeing the witnesses give evidence, Lau impressed me to be telling the truth and I find the above to be the fact.

34.  On the contrary, I am sceptical about Cho’s evidence.  Cho is a witness who would seek to attribute the apparent inconsistency in his affirmation (such as that in respect of who wrote the acknowledgement part in the 17 August receipt) to his solicitors’ failure to translate and to explain to him before he affirmed it.

35.  I am not convinced by his evidence regarding the handling of the rental deposit.  The rental deposit was HK$33,000 (HK$16,500 x 2) paid by DNA to Lau under the original tenancy in 2002.  While I would understand from Lau’s point of view that the rental deposit of this amount was kept notwithstanding his acceptance of rent at the concession rate of HK$13,500 at some stage of this term of the tenancy, I fail to see why the same deposit would remain in the hands of Lau notwithstanding Cho’s alleged taking over of the tenancy in 2005 at the actual monthly rent of HK$13,500.  Cho’s answer was that the difference was not much and that the rent might go up some time later.  I find this to be incredible.

36.  Further, his evidence as to how he sorted out the account between him and Liang and how DNA’s entitlement to the refund of the deposit was transferred to him personally was assertion without any documentary support.

37.  On balance, I do not accept Cho’s evidence that he and Lau had discussed and agreed on a fixed term of the tenancy in 2005 or 2007.

REGISTRATION

38.  Counsel argued about the registrability and therefore the enforceability of the alleged agreement embodied in the 17 August receipt under Land Registration Ordinance, Cap.128.  I would deal with the arguments briefly for completeness.

39.  To begin with, this is not a pleaded issue.  Further, the statutory provisions do not come into play even assuming that there was the alleged oral tenancy agreement between Lau and Cho in 2007.

40.  Indeed, somehow it is pleaded (para.13 of Cho’s Defence) that the alleged oral tenancy in 2007 between Lau and Cho was “reduced in and evidenced by writing”, namely, the acknowledgement part of the 17 August receipt.  It goes on to plead that Cho will “rely on its full terms and effects in the material trial”.  Mr Hui for Linkmax argued that the 17 August receipt would in that case be an instrument in writing affecting land (according to section 2) and was registrable.  It was not registered and is therefore null and void against Linkmax (according to section 3).  Mr Hui cited Citibank NA v Lai Tat Cheong and Anor [1986] HKLR 885 in support.

41.  In Citibank, the written document in question was prepared to incorporate the terms of the oral agreement and executed by the contracting parties.  The court found as a matter of fact that it was clearly a written instrument to confirm and to supersede the earlier oral agreement.  It was even referred to as a Chinese Tenancy Agreement so that the full terms and effects of which would be referred to at the trial.

42.  In the present case, contrary to Cho’s pleading (para.13), I do not find as a matter of fact that the 17 August receipt was prepared for the purpose of incorporating the terms of the agreement.  It was not signed or kept by both parties as if this was a contractual document.  It was clearly not intended to supersede the alleged oral agreement (see para.14 of Cho’s pleading).  Even assuming that there was the alleged oral tenancy, the receipt was only a receipt for rental payment and could at most evidence the existence of the alleged oral agreement.  Citibank is therefore distinguishable from the present case.

43.  I see no need to go further to deal with counsel’s argument as to whether the alleged tenancy was at a rack rent and therefore whether the proviso of section 3(2) is applicable.

POSSESSION AND DAMAGES

44.  Insofar as his occupation of the property other than for and on behalf of DNA is concerned, Cho personally was and is not a tenant and therefore a trespasser.  Linkmax should be entitled to possession of the property.

45.  Linkmax claims damages from January 2008 up to the delivery of vacant possession of the property.  This is pleaded to be the difference between the rent payable by DNA and the prevailing market rent.  Linkmax adduced no evidence of the prevailing market rent, apart from instructing Mr Hui to suggest during his submission that this is about HK$25,000.  I see no basis for Mr Hui’s suggestion of a split hearing for the assessment of such damages that would amount to a second bite of the cherry.  I will allow damages effectively in the form of mesne profits at the rate of HK$14,500 per month.

ORDER

46.  Judgment is entered in the following terms:

(1) The 1^st and the 2^nd Defendants do deliver vacant possession of the property to the Plaintiff;

(2) The 1^st and the 2^nd Defendants do pay to the Plaintiff damages for the occupation of the property (or mesne profits) at the rate of HK$14,500 per month from 4 January 2008 until the delivery of vacant possession as aforesaid;

(3) Interest on the aforesaid amount from their respective accrual dates up to full payment at the judgment rate.

47.  Costs should follow the event.  Only Cho appeared in these proceedings.  I therefore make a nisi order that Cho (1^st Defendant) shall pay the Plaintiff’s costs of this action.  Costs shall be taxed, if not agreed, with certificate for counsel.  In the absence of any appointment in 14 days to argue costs, this costs order shall become absolute.