CHANG WAI JING v. MULCHANDANI, DAYAL TILOCKCHAND t/a DANSON'S INCORPORATION

HCA 10828/96

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10828 OF 1996

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J U D G M E N T

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1. This action concerns a shop premises in Tsimshatsui, Kowloon, namely No.10 Far East Mansion, Middle Road, of which the Plaintiff is the owner and the Defendant was, until July this year, the tenant.

2. Far East Mansion is a comparatively old building, completed in 1959, of 18 floors, originally designed and built with 25 commercial units on the ground and first floors, and 69 flats on the upper floors. The commercial units appear to have been subdivided by the developer to create a greater number of small shops. No. 10 was purchased by the Plaintiff together with three other ladies in May 1960 and transferred to her sole ownership in June 1964, and has, she says, always been let as a shop. These proceedings are in respect of her claim from the Defendant for unpaid rates which she claims pursuant to a tenancy agreement dated 9 March 1990, and the balance of rent of $21,800.00 a month due from July 1994 to the termination of the tenancy in July 1999.

3. The Defendant first became the tenant of the shop by a written tenancy agreement commencing on 1 March 1984 for a term of two years. The relevant terms of the agreement were that the rent payable was $12,000.00 per month, inclusive of rates but exclusive of management charges, a deposit of $60,000.00 was payable by the tenant, and upon the tenant giving not less than 6 months written notice, the tenancy would, at its expiration, continue for a further period of two years at an increased rent of $14,000.00 per month, but otherwise on the same terms and conditions. The Defendant commenced his business there, principally as a tailor, under the name of Danson's Incorporation.

4. The option to renew was taken up by the Defendant in 1986 and the tenancy accordingly continued until 1988 when a new written agreement was entered into by the parties. This was again for two years and increased the rent to $18,200.00 per month, the deposit to $78,000.00, but otherwise the same terms and conditions applied, including the Plaintiff paying the rates and the Defendant the management charges.

5. The negotiations for the tenancies took place personally between the parties when the Plaintiff, as was her custom, visited the premises to collect the rent. This occurred again in 1990 upon expiration of the 1988 tenancy when the Plaintiff this time asked for, and obtained, his agreement to an increase in rent to $40,000.00 a month and, she says, exclusive of rates, for a new tenancy of two years. The Defendant says that he reluctantly agreed to pay the new rent, although he thought it high and said that he would see if he could afford it, but says that there was no mention of rates and he assumed that the previous terms would apply, as the only negotiations had been about the rent. The tenancy agreement was drawn up by the Plaintiff's solicitors, as had the earlier agreements, including provision for an increased deposit of $120,000.00, and the Defendant went to their offices and signed it.

6. However, this agreement contained a new term requiring the Defendant to pay the rates, not the Plaintiff as before. The Defendant said that he did not read the agreement and he assumed that all the other terms remained the same as they had not been mentioned, and he was accordingly surprised when the Plaintiff came to collect the rent and asked for the rates in addition. He says that this was 3 or 4 months after the tenancy commenced, but he was not shown the rates demand or receipt, and the Plaintiff did not know how much they were. He says that he protested that this was not part of the agreement and the matter was never mentioned again. Indeed, the Plaintiff agrees that no rates have ever been paid by the Defendant since then, and she has never shown him any demand or receipt for them, although she says that she has repeatedly asked for them and has been told that he cannot afford to pay and that she should deduct the amount due from his deposit.

7. If the payment of rates was not part of the agreement entered into by them during negotiation, then the inclusion of such a term must have been an error on the part of the solicitors not noticed at the time. In support of her contention that it was included, the Plaintiff says that she could have charged a much higher rent at the time, and wanted $50,000.00, but agreed to $40,000.00 on condition that rates were included. If this is right, her efforts to collect it seem extremely half-hearted. Even if I accept that she asked more than once for the rates, I would expect her to have copies of the receipts, the rates being paid by her brother, to show how much she was claiming. But she admits that she never did this. Indeed, she cannot even now produce receipts for rates paid since September 1996. Further, in spite of her claims that the Defendant asked her to deduct the amount due from his deposit, there has been no attempt by her to do so and account for how much, and no further demand for the rates after the total exceeded the deposit.

8. In the circumstances I consider it more likely that the Defendant's version of this agreement is correct, that the rates were not mentioned in the negotiations, and only included in the written agreement in error. The Plaintiff noticed the error and tried to enforce it, but properly gave way when the Defendant protested. While there must be a presumption that parties to a written agreement intend the terms included therein, I have no hesitation in finding the Defendant has rebutted that presumption and that there is no liability on him for payment of any rates for the property under the 1990 agreement.

9. Following the 1990 agreement, the Defendant continued to pay the rent in the usual way, by handing cheques to the Plaintiff when she called, at somewhat irregular intervals, to collect it, and at the end date of the tenancy, 28 February 1992, as there were no further negotiations and no new agreement, the tenancy continued under the provisions of section 122 of the Landlord and tenant (Consolidation) Ordinance, Cap. 7 on the same terms.

10. However, in 1994 the Defendant brought up the matter of the rent and sought to renegotiate it. That year he said his business had suffered, in particular as a result of the closing of the Ambassador Hotel, which adjoined Far East Mansion, into the ground floor arcade of which there was direct access from the lobby. It is clear that there were a number of discussions about the rent, and relations between the parties, hitherto amicable, became strained. The Plaintiff wanted the Defendant to remain as tenant; the income from this property was her sole source of income and, although she maintained several times that she wished to sell it, while she was earning a reasonable rent I am sure that the easier option of having a reliable tenant was preferable to her. It is not in dispute that there were lengthy arguments about the rent, the Defendant wanting a reduction to, he says, $18,200.00, and the Plaintiff equally adamant that it should remain at $40,000.00.

11. It is here that the accounts of the parties begin to differ. The Defendant contends that the Plaintiff eventually agreed to reduce the rent to $18,200.00 and he made out cheques for that amount from July 1994 onwards to the end of the year. However, the Plaintiff never returned to collect any rent, and he did not see her again until September 1996, some two years later.

12. The Plaintiff, for her part, while agreeing that the discussions took place about the rent, insisted that she never agreed to accept any lower rent, and that when he tried to give her a cheque for $18,200.00, she refused to accept it. She said that if he was not happy with the rent he should move out. This was, of course, always an option for the Defendant. Throughout the history of this tenancy his plea that his business was not doing well seems to have been a constant refrain, even up to the present. Yet he has never seriously taken any steps to find and move to cheaper premises, and his business has continued throughout. I have been shown accounts for the years 1993 to 1996 which purport to show how badly he was doing, but, while they do not present a picture of a business making huge profits, there always was a profit, even when the rent was being paid at $40,000.00. It is significant, in my view, that I have not been shown accounts for the years before 1993 which, by comparison, might have shown that his business really was suffering from a downturn. I only have therefore his bald allegation that it had gone badly downhill and he could no longer afford the rent agreed in 1990. I find that I cannot accept that. If business was as bad as he says, his obvious remedy was to terminate the tenancy and move to cheaper premises, particularly if, as he also maintains, the closure of the Ambassador Hotel next door was the principal cause of the lack of custom.

13. Whatever the real situation was, it is clear that he was at least forceful in his arguments about the rent with the Plaintiff. She says that she never gave in, but was so unhappy with the atmosphere, and the Plaintiff's attitude, that she stopped coming to collect the rent. It is less clear what she did intend to do about it. She says that she had some other money from the sale of her flat when she moved in 1991, but it is difficult to imagine a landlord not collecting rent for such a long period. It may well be that, at the beginning, knowing the Defendant would still try to press her to accept the lower rent, she did not want further aggravation. She is after all not a young woman, being now over 70. As time passed it may well have been more difficult to return and face the Defendant again.

14. Whatever the reason, her disappearance from the scene does not assist the Defendant's case. If, as he says, she had willingly agreed to a reduced rent of $18,200.00, why should she not come to collect it as before? During this time, his liability to pay rent remained, and he did, on two occasions in 1995, send registered letters to her last address, as he had not been told that she had moved some three years earlier. These were returned by the Post Office. He made no other attempt to trace her or pay the rent. Indeed, it is interesting that the letters themselves say nothing about payment of rent, but repeat again his complaints about his business and say that he wants to give up the tenancy. If this had been a serious intention, he could have taken legal advice, which he also failed to do. I am therefore left with grave suspicions as to the Defendant's intentions. Apart from his complaints, he has never shown any inclination to cease the business he had pursued for many years, or to move it elsewhere. The obvious conclusion is that he was quite capable of doing business and making a profit there at what was no more than the market rent for that area.

15. The Plaintiff's expert witness Mr. Chan, a surveyor, produced his report as to those market rents, and explained the methodology of arriving at his figures by comparing other properties in the same locality. Although I accept that this is an inexact science, and landlords and tenants may have other reasons for arriving at agreed rents, I am satisfied that his valuation gives an accurate as possible idea of what a reasonable rent would be from 1994 to 1996, and that of $40,000.00 fell well within that range. I am also satisfied with his evidence regarding the closure and demolition of the Ambassador Hotel and the effect, if any it had on the market rental in the area. Indeed, the rent which the Defendant says was agreed in 1994 is barely a third of the market rate, and the level at which the rent had been over four years before. For the Plaintiff to have accepted that rent would not have made commercial sense, even to an elderly lady such as she with little business experience and less education.

16. My view that an agreement to reduce the rent is unlikely is reinforced by the behaviour of the Plaintiff when she reappeared some two years later. The Defendant says that she came to see him in September 1996, to collect, he maintains, the arrears of rent at the reduced level and gave him her bank account number to pay it in. However, on 3 September, almost at the same time or very shortly thereafter, her solicitors wrote to him demanding the arrears at the original rate of $40,000.00, and when that was not paid, commenced these proceedings some three weeks later. This is hardly the behaviour of someone who knows that an agreement was entered into for a rent at a much lower level and which the tenant has said he will pay, unless they are capable of extreme deviousness. I do not have the impression that the Plaintiff is capable of that level of deceit, and I accept her version of the events both in 1994 and 1996.

17. It is possible that the Defendant believed that an agreement had been reached in 1994 as to a reduction in rent, or that he believed that his arguments had had sufficient effect on the Plaintiff that she would accept it when she next came to collect rent, as he appears to have prepared cheques for the new amount and told his accountants what he expected to pay for inclusion in his accounts. However, from my findings above, it is clear to me that such a belief was not shared by the Plaintiff and, while it is possible also that the result of the discussions was inconclusive, there was no concluded agreement between the parties sufficient to support the Defendant's contention of a variation in the terms of the tenancy.

18. I accordingly find that the terms of the Defendant's tenancy from July 1994 to the date it was surrendered in July 1999 were as in the agreement signed by the parties in 1990, save for the matter of rates, and give judgment for the Plaintiff for the sum claimed of $1,311,516.00, being the difference between the agreed rent of $40,000.00 a month and the amount of $18,200.00 a month which the Defendant has paid for the period.

19. There will also be an order nisi that the Defendant pays the Plaintiff's costs of these proceedings to be taxed.