LAI CHEUK FAI v. VARYCLEAR LTD

LDPE 709/2021

[2021] HKLdT 58

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 709 OF 2021

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J U D G M E N T

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Background

1.  This is a dispute between two dentists concerning a repudiation of a tenancy agreement between the two.

2.  By a tenancy agreement dated 25 May 2021 (“the Tenancy Agreement”), the applicant let to the respondent Room 1402A, 14/F, Sino Centre, 582-592 Nathan Road, Kowloon (“the Premises”) for a term of 1 year from 1 June 2021 to 31 May 2022 at a rental of $17,000 per month (inclusive of management fee and government rates) subject to a rent free period from 25 May 2021 to 31 May 2021.

3.  Under paragraph 1 of Schedule II to the Tenancy Agreement, the Tenant shall not use or permit to be used the Premises or any part thereof for any purpose other than for dental clinic (牙科診所) and related works purpose only. Under paragraph 5 of the same schedule, the landlord shall provide the following equipment and not responsible for any repair, maintenance, removal or replacement:

1.	Durr compressor	2.	Ash Berly mk ii polishing grinder
3.	Ultradent Ultravac	4.	Silfradent vibrator
5.	Insta-Veloper	6.	Woopecker UDS-P Ultrasonic Scaler
7.	Toshiba refrigerator	8.	Fax machine Panasonic KX-F2581
9.	ESPE Elipar Freelight 2	10.	Three Panasonic telephones
11.	Television SKYWORTH	12.	EMS mini PIEZON scaler
13.	Propex ii Dentsply Apex Locator	14.	Dentsply X Smartplus
15.	Dental Chair (PROGIA BELMONT) with dental light	16.	High Volume suction machine (SOLID STATE SWITCH)
17.	L&R Ultrasonic cleaner	18.	LISA W&H Class B autoclave
19.	BELMONT Xray machine	20.	Two Operating stools
21.	THERMAPREP PLUS (for THERMAFIL)	22.	Digitest EPT Tester

The landlord shall also not be liable for any injury or damage to the person, business equipment or property of tenant or any of tenant’s employees, invitees or customer or any other person or about the property, resulting from any cause whatsoever.

“The Tenant is not responsible to any repair, maintenance, removal or replacement of the equipment however shall return after lease term.”

4.  On 8 July 2021, the applicant applied to the Tribunal for recovery of possession of the Premises on the ground that the respondent had failed to pay rent since 1 July 2021.

5.  On 14 July 2021, Ms Young Yau Yau Cecilia (“Ms Young”), as the sole Director of the respondent, filed a Notice of Opposition on behalf of the respondent stating, inter alia, that the respondent had not moved in the Premises, the door lock was damaged immediately after signature of the Tenancy Agreement, the X-ray machine in the room was not under a proper licence and therefore the Premises was not usable as a dental clinic. The particulars of Ms Young’s opposition are summarized as follows:

(1)  Ms Young came to a notice of a newsletter of Hong Kong Dental Association on which the applicant placed an advertisement for letting the Premises as a dental clinic with usable equipment and tools.

(2)  Ms Young responded to the advertisement and the applicant told her that he, also a dentist, was going to retire.

(3)  Ms Young visited the Premises and discussed with the applicant stating that she was a registered dentist and researcher. She was told by the applicant that the Premises would be let in its usable state, ie with leaded wall, X-ray machine, dental chair, equipment, instruments and tools.

(4)  During the first and second visit, Ms Young further alleged that the applicant repeatedly told her that the X-ray, dental chair and leaded wall and the above-mentioned items were in a usable state.

(5)  The applicant prepared the draft Tenancy Agreement on or around 24 May 2021 and sent it by WhatsApp to Ms Young who told him that the Premises would be used a dental clinic. The Tenancy Agreement was then signed on 25 May 2021.

(6)  Ms Young said she trusted the applicant since he told her that he had worked as a registered dentist for more than 40 years and his son was a doctor. Ms Young submitted that it was reasonable to trust a colleague for basic ethics in the field as regards the confidentiality of patients’ data/ medical record/ research data/ consent form and the licence of X-ray machine.

(7)  The applicant also demonstrated the “electric security lock” of the entrance door which was very tight from the top to the floor. Ms Young alleged the applicant had stated that other items mentioned in the Tenancy Agreement were in a usable state.

(8)  After that, the applicant showed Ms Young a letter dated 22 May 2021 that he wrote to the Radiation Board, Department of Health:

“I wish to cancel my application for abandonment of irradiation apparatus as it happened that there is a dental surgeon who would like to take up my dental office to continue her practice.

Thank you for your attention.”

(9)  The applicant gave Ms Young a letter from the Radiation Board dated 17 May 2021 which stated as follows:[1]

“ Abandonment of Irradiating Apparatus

Thank you for your application for the abandonment of an irradiating apparatus.

Please dismantle your X-ray tube head and render it radiologically harmless.

The Radiation Board inspector will contact you for the inspection of your abandoned irradiating apparatus in due course. Radiation Board will issue a written certificate to you afterwards.

If you have any enquiry, please contact me at xxxx xxxx.”

(10)  Thus, the applicant told Ms Young that the Radiation Board asked him to dispose of the head of the X-ray machine. The applicant told her to contact the Radiation Board. Ms Young opined that the procedure seemed not to be in order: the X-ray machine should either be in storage or in function.

(11)  Obviously the letter dated 22 May 2021 was in place before the signature of the Tenancy Agreement but the applicant only gave it to Ms Young after the signature. He applied for the abandonment of the X-ray machine but requested Ms Young to apply the licence for use of the X-ray machine. The applicant therefore could not check the X-ray machine with Ms Young and Ms Young had no chance to test whether the X-ray machine was in normal condition. Ms Young alleged that without a proper licence in use, she could not switch on an X-ray machine that was not in function and neither could the applicant.

(12)  Ms Young explained that there are two different types of licences for the x-ray machine, ie storage or in function. If there be no licence for storage, the X-ray machine cannot be stored in any premises even if it is not in use. If on the other hand, for an X-ray machine to be used, it requires a licence in function. To the extent that the applicant had applied for abandonment of the X-ray machine, he should have told Ms Young before she signed the Tenancy Agreement. Even if the applicant re-apply for the licence after the discussion, damage had been done to Ms Young.

(13)  Ms Young alleged that she had been working in another clinic with HKD$3,000 per hour for the room in Central with basic equipment. Because she could not make use of the Premises as dental clinic, she had to either refund or postpone her appointment with clients.

(14)  Ms Young submitted that the applicant could have tested the X-ray machine with her before the signature of the Tenancy Agreement which according to her is the most important procedure.

(15)  Ms Young complained that when she went back to the Premises around 10 June 2021, the electric lock did not work. The control panel was also not in its original position. But the entrance door was mobile. Ms Young alleged that it was not suitable to store the X-ray. Ms Young only switched on the light and then left; she did not put anything inside the Premises.

(16)  Ms Young though that the applicant should have the proper X-ray licence before she signed the Tenancy Agreement. She then checked and confirmed this with the Radiation Board whereby she was informed that since she had not applied for the X-ray licence for that X-ray machine yet, she did not need to take any responsibility during the period the applicant did not have the proper licence. The e-mail dated 30 June 2021 from the Radiation Board to her was as follows:

“Thanks for your information.

We will follow-up with Dr Lai Cheuk Fai accordingly.

Many thanks.”

(17)  While the officer from the Radiation Board said that he would contact the applicant, Ms Young told the applicant that she would not take up the X-ray machine because he had not checked it with her with a proper licence.

(18)  Ms Young submitted that she could not move into a dental clinic without a proper X-ray licence; any registered dentist moving into the room with an X-ray machine without a proper licence would be in trouble under the Radiation Ordinance and the Dental Council.

(19)  Ms Young asked the applicant to terminate the Tenancy Agreement on 9 June 2021 to no avail.

(20)  In addition, Ms Young found the fax machine had it headset separated and was not in a usable state. Ms Young complained that it would not be suitable to put something not usable in the dental clinic to occupy the space.

(21)  Ms Young also complained that there are three newly set CCTV surveillances installed by the financial company nextdoor of the Premises. Ms Young suggested that the CCTV should only aim at those going to their premises instead of all passers-by along the corridor. Ms Young submitted that the management fee was included in the rental but the applicant did not respond to her request to discuss with the management company.

Hearing on 30 July 2021

6.  On the hearing day of 30 July 2021, the applicant’s daughter-in-law, Ms Cheung Shuk Yan (“Ms Cheung”) attended on behalf of the applicant while the respondent is represented by Ms Young.

7.  Ms Cheung said the applicant did not tell Ms Young he had a valid licence for the X-ray machine[2]. Ms Cheung said the applicant had told Ms Young that he had applied to abandon the X-ray. Ms Young was told to apply for the possession licence.

8.  Ms Cheung confirmed that by paragraph 5 of Schedule II to the Tenancy Agreement, those apparatus or equipment were “loaned （借）” to Ms Young.

9.  Ms Cheung said on 11 November 2020, the applicant placed an advertisement for lease of the Premises which stated that he had practiced for 40 years before retirement and the dental clinic had not been operated since that time. Ms Cheung stated that the applicant had told Ms Young that the X-ray machine could not function （放射X 光）but could be switched on. Ms Cheung said the applicant had consulted the Radiation Board who informed that the tenant had to apply for her own possession licence. Therefore, the applicant sent a letter dated 22 May 2021 to the Radiation Board to cancel the abandonment of the X-ray machine.

10.  Ms Young denied she was ever told that the X-ray machine could not function otherwise she would not have signed the Tenancy Agreement. Ms Young repeated that there are two types of licence for handling an X-ray machine: one for possession and the other for use. If the applicant had retired, and if the X-ray was not abandoned, he should have applied for the licence to possess, failing which a medical practitioner entering the premises where the X-ray machine was placed would breach the law, more particularly the Radiation Ordinance.

11.  Ms Young said it was after the signing of the Tenancy Agreement that the applicant began to demonstrate the condition of the various equipment as stated in paragraph 5 of Schedule II to the Tenancy Agreement.

12.  Ms Young said that also after the signing of the Tenancy Agreement, the applicant produced an application for “Abandonment of Irradiating Apparatus”  for the X-ray machine dated 14 May 2021, before signing the Tenancy Agreement on 25 May 2021, which stated that he retired on 30 December 2020 and the licence for possession of the X-ray machine: 51284-0001-TH-0010 was only valid until 30 December 2020[3]. Again, Ms Young said that if she learned the applicant had retired so many months before, she would have been alerted to the presence of a valid licence for possession of the X-ray machine.

13.  Ms Young submitted that she could not apply for a licence to use the X-ray machine unless there existed a valid possession licence.

14.  Also, Ms Young said that on or around 10 June 2021, she found the entrance door was mobile which meant anybody other than a medical practitioner may break inside and get in touch of the X-ray machine.

Discussion and Analysis

15.  Halsbury’s Law of Hong Kong, Volume 36, 2^nd edn, 2021, [235.302] states as follows:

“There is in general no implied warranty on the part of a landlord that the demised premises are fit for the purpose for which they are taken; and, therefore, on the letting of an unfurnished dwelling house or flat there is no implied warranty on the part of the landlord that it is in a reasonably fit state for habitation, or that it may be lawfully used for the purpose for which it was let. The intending tenant is presumed to make his own inquiries as to its condition, and, in the absence of a special stipulation, he takes the house as it stands. This is so notwithstanding that the house is, to the landlord’s knowledge, required for immediate occupation. If the house is, in fact, uninhabitable, then, after accepting the lease, the tenant is without remedy except where he has obtained a warranty of fitness, or where he has been induced to take the lease by misrepresentation on the part of the landlord, in which case the tenant may be entitled to rescission or damages. The mere omission of the landlord to disclose defects is not such misrepresentation but the deliberate concealment of some defects may be conduct equivalent to a fraudulent misrepresentation. If, however, the contract is still executory, it will not be enforced if the condition of the house is such that it is dangerous to health or otherwise uninhabitable. …”

16.  However, in Ko Ching Chung v Fulltin Investment Limited, DCCJ 4857/2004 (unreported, dated 29 June 2006), the plaintiff, Mr Ko, together with partners, decided to open a Japanese restaurant. Mr Ko was introduced to a Mr Lau, who was the managing director of the defendant, the owner of the premises which Mr Ko intended to rent to operate a Japanese restaurant there. A few days later, the plaintiff signed a provisional tenancy agreement, to rent the premises for 5 years. HH Judge H C Wong made the following findings as to what had been said by Mr Lau to the plaintiff:

“28. Based on the evidence of Mr Ko, there was clearly a representation from the Defendant’s managing director, Mr Lau, that the suit premises were fit for the operation of a Japanese restaurant and a restaurant licence could be obtained. On the other hand, Mr Lau claimed he had merely made a reference that there was a Thai restaurant at units A., B, C and D before. The reason why Mr Lau made the reference to the Thai restaurant at the suit premises previously was clearly intended to assure Mr Ko that the premises must have had a restaurant licence before.

29. Based on the evidence of both Mr Ko and Mr Lau, on a balance of probabilities, there were clearly representations made by Mr Lau to Mr Ko that the suit premises were suitable for the operation of a Japanese restaurant.

…

43. I am satisfied that Mr Lau did make the representations to Mr Ko, and I accept that those representations were made with the effect that the Plaintiff was induced into signing the provisional tenancy agreement. It is possible that Mr Lau genuinely believed those statements to be true when the representations were made based on the history that 4 of the 5 units at the suit premises were used as a Thai restaurant when the Defendant purchased the premises. He might have mistakenly believed there should be no problem for a restaurant licence to be granted and Mr Raymond Chan could help the Plaintiff to get that licence.

…

49. I am satisfied on a balance of probabilities that Mr Lau did make the two representations to Mr Ko to assure him and put his worry over the restaurant licence at rest using his own experience and professional qualification as a real estate administrator to reinforce the assurance. The representations induced Mr Ko to sign the provisional tenancy agreement. Consequently, there is ground for Mr Ko to infer the representations and assurances made by Mr. Lau to him to be a warranty. Applying Lord Denning’s dicta in Dick Bentley Productions Ltd, the Plaintiff had entered into the contract based on the inducement from Mr. Lau, consequently, the representations can be inferred as intended to be a warranty.” (underline added)

The Court of Appeal affirmed the decision of the District Court[4].

17.  Then in Master Yield Ltd v Ho Foon Yung Anesis & Another [2013] 6 HKC 520, the plaintiff, the tenant of a shop, claimed damages for misrepresentation by the landlord made before signing the provisional tenancy agreement. The judge of the Court of First Instance there was misrepresentation found that approval for the installation of air-conditioners on the external wall of the shop was not required from the Incorporated Owners. The Court of Appeal ruled that it must be material for a tenant who intended to operate a spa business at the shop that the installation of air-conditioning units could be reasonably contemplated.  It held that this was a case where the onus was on the defendants to show that the plaintiff was not induced by the misrepresentation.

18.  More recently, in J N Hipwell & Sons v Szurek [2018] EWCA Civ 674, [2018] L&TR 15, the English Court of Appeal referred to Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and Another [2016] AC 742 where Lord Neuberger of Abbotsbury PSC (with whom Lord Sumption and Lord Hodge JJSC agreed) identified or emphasised the following principles:

(1)  The starting point is to determine whether there is any provision in the agreement in question (in that case also, a lease) which expressly covers the point: only if there is not can the implication of a term be appropriate, for the jurisdiction is to restore efficacy not improve that which, though not optimal, is workable (my phraseology). As Lord Neuberger put it, "it is only after the process of construing the express terms is complete that the issue of an implied term falls to be considered" (at §28).

(2)  The Court must take into account the possibility that the parties deliberately decided not to include the term sought to be implied: it is tempting but wrong to fashion and interpolate a term simply to reflect the merits of the situation as they appear when the issue arises: see §19 and the quotation from Lord Bingham MR's judgment in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472 at 481-2.

(3)  The question whether a term is to be implied is to be judged at the date when the contract is made.

(4)  The test is necessity, not reasonableness; but "absolute necessity" may put the bar too high, and it may be more helpful to ask the question whether without the term the contract would lack commercial or practical coherence.

(5)  Although the process of construction and the process of implying terms both involve determining the scope and meaning of the contract (see Attorney-General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988), the process of implication involves a rather different exercise from that of construction, and calls for strict restraint.

19.  The English Court of Appeal then found that to ensure that the lease for use as a café, meeting place or function room does not lack commercial or practical coherence, or, in other words, as a matter of business necessity, a covenant on the part of the Appellant as landlord should be implied to the effect that the electrical installation and other service media provided was safely installed and continues to be covered by any requisite certificate.

20.  The Hong Kong Court of Appeal in Leung Wai Ling Isewesg v Success Base Engineering Limited, CACV 58/2020 (unreported, 15 March 2021) did not regard J N Hipwell & Sons v Szurek, supra as making a fundamental change in the law. Whether the obligation is implied is still one of necessity (viz whether without the term the contract would lack commercial or practical coherence) at the date when the contract was made.   

21.  In the present case, as intimated by Ms Young, section 7 of the Radiation Ordinance, Cap 303 is relevant:

“7. Control of radioactive substances and irradiating apparatus

(1) Subject to such exemptions as may be prescribed, no person shall, except under and in accordance with a licence issued under this Ordinance—

(a) manufacture or otherwise produce; or

(b) sell or otherwise deal in or with; or

(c) have in his possession or use,

any radioactive substance or irradiating apparatus.

22.  Further, regulation 7 of the Radiation (Control of Irradiating Apparatus) Regulations posts the following requirements for transfer, abandonment, etc. of irradiating apparatus:

“(2) Any licensee who intends to dispose of any irradiating apparatus by—

(a) sale or other transfer to another licensee; or

(b) abandonment,

shall give to the Board not less than 7 days’ notice in writing specifying the apparatus concerned, the proposed date of disposal and, in the case of a disposal under paragraph (a), the name and address of the proposed transferee.”

23.  Schedule 2 to the Radiation (Control of Irradiating Apparatus) Regulations specifies the following categories of licences:

1.	A licence to possess an irradiating apparatus in a non-functional state or to possess an irradiating apparatus pending consideration of an application for a licence to possess the apparatus in a functional state
2.	A licence to possess, or to possess and use an irradiating apparatus in a functional state
3.	A licence to use any irradiating apparatus or apparatuses
4.	A licence to sell or deal in any irradiating apparatus or apparatuses or any licence other than a licence referred to in categories 1, 2 and 3

24.  Incidentally, a sample of the Application for Irradiating Apparatus Licence is shown on the website of the Radiation Board[5] which is copied as Appendix 1 to this judgment. By the footnote (a), the one who makes the application has to “(s)tate purpose for which licence is required, i.e. to possess, sell, manufacture, operate, etc”.

25.  In another sample of First Application for a Licence to Process an Irradiating Apparatus in a Functional State, which is now shown as Appendix 2 to this judgment, there are “Notes for Applicants”. In Remark (ii), it states that:

“Any current licence mentioned in this application must remain valid on the date of submission of this application.”

This accords to the defence of Ms Young that in the absence of a valid licence to possess, she could not even apply for a new licence even if she wishes.

26.  Ms Young submitted that it was never her intention as a tenant to take up the X-ray machine as a new licensee to possess; her sole purpose of renting the Premises was for running a dental clinic which includes of course operating the X-ray machine in respect of which she had a licence to use. I agree, as the Tenancy Agreement specifies that Ms Young, as the tenant, shall return the equipment including the X-ray machine after the 1-year lease term. Neither did the applicant’s letter to the Radiation Board dated 22 May 2021 state Ms Young would be the new licensee.

27.  I regret that Ms Cheung was not present during the signature of the Tenancy Agreement and was unable to challenge the alleged facts intimated by the respondent. Neither did Ms Cheung claim to be a medical practitioner. Ms Cheung confirmed however the applicant himself would not be called to give evidence.

28.  Be that as it may, I am satisfied with the credibility and reliability of Ms Young’s submission on the importance of the licence to possess an X-ray machine.  On the balance of probability, I accept Ms Young evidence that the applicant had represented that all the equipment mentioned in paragraph 5 of Schedule II to the Tenancy Agreement were in a usable state. There was an implied warranty by the applicant that the Premises was suitable for the use as a dental clinic but this warranty was breached.

29.  As regards the allegation by Ms Young that the entrance door was mobile or not tight, I am afraid that she had to accept what she found as at the day of signing the Tenancy Agreement on which she did not find it to be the case. The same principle should also apply to the malfunction of the fax machine, if any.

30.  Turning to the installation the CCTV surveillances by the financial company nextdoor, I consider the applicant not liable for such wrongdoing, if any, by a third party not deriving title from him. In Chong Lap Fu George v. Hydra Shipping Services Limited and Others [2009] 4 HKC 445, for instance, HH Judge Au (as he then was) held that the Incorporated Owners is an entirely separate and distinct person from the individual owners as landlord in a lease. That the rental payable by the respondent was inclusive of management fee is neither here or there.

Jurisdiction of Lands Tribunal

31.  In an affirmation filed by Ms Young on 27 July 2021 on behalf of the respondent, Ms Young, while repeating what she stated in her Notice of Opposition, claimed for the refund of the deposit paid and the 1 month’s rental she paid in advance under the Tenancy Agreement.

32.  Ms Young also alleged that she had returned the key to the Premises to the applicant on 16 July 2021.

33.  To the extent that the respondent is intending to make a counterclaim against the applicant, the Tribunal has no jurisdiction. In 黃英對譚炳新, HCMP 2049/2000 (unreported, dated 1 August 2000) and Chan Yin Kwan v Wong Kam Hoi, CACV 223/2007 (reported as [2008] 1 HKCLRT 27) and Ngai Ngok Pang & Another v Lee Syn Yuk, Michelle, LDPD 3030/2012 (unreported, dated 10 May 2013), the courts ruled that the Lands Tribunal does not have jurisdiction to entertain any counterclaim by the respondent.

34.  Even when section 8 of the Lands Tribunal Ordinance was amended in 2008 to award damages solely, as well as in addition to rent and mesne profits, it was explained to the Legislative Council that the amendment did not seek to empower the Lands Tribunal to award damages that may go beyond its jurisdictional limit on the types of cases it can entertain.[6]

35.  More particularly, in Ngai Ngok Pang& Another v Lee Syn Yuk, Michelle, supra, His Honour Judge Ko was of the following view:

“15. The Lands Tribunal may only, in an application for possession or ejectment, make an order for the payment of damages in respect of breach of a condition of the tenancy (see section 8(8) of the Lands Tribunal Ordinance, Cap 17). A counterclaim is generally treated as an independent action (see Hong Kong Civil Procedure 2013, paragraph 15/2/4). Since the respondent is not also counterclaiming for possession or ejection, the Lands Tribunal does not have jurisdiction to entertain her claim for damages.”

36.  Depending on the amount the respondent intends to claim, Ms Young can initiate proceedings in the Small Claims Tribunal, the District Court or the High Court as the case may be.

Order

37.  As stated in §28 above, there was an implied warranty by the applicant that the Premises was suitable for the use as a dental clinic but this warranty was breached. The tenant was entitled to rescission of the Tenancy Agreement. I therefore make an order that the application by the applicant dated 8 July 2021 be dismissed.

Costs

38.  As costs should follow the event, I also order the applicant do pay the respondent's costs resulting from this application which is summarily assessed at HK$6,000.

Appendix 1

Appendix 2 (p.1)

Appendix 2 (p.2)

Appendix 2 (p.3)

Appendix 2 (p.4)

[1] Exhibit R2.

[2] Hearing time at 2:44 pm.

[3] Exhibit R1.

[4] Unreported, CACV 337/2006, 13 July 2007.

[5] https://www.rbhk.org.hk/docs/1271s_ia_p2_sample.pdf

[6] See for instance, the response by the Judiciary to the Bills Committee on Civil Justice (Miscellaneous Amendments) Bill 2007 in September 2007:

http://www.legco.gov.hk/yr06-07/english/panels/ajls/papers/aj1127cb2-430-2-e.pdf