LEE LAI CHUN v. GRAND SEASONS (CENTRAL) AND ANOTHER

DCCJ 6329/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.6329 OF 2001

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JUDGMENT

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Background:

[1] At the relevant time, the Hong Kong Housing Authority (the "HKHA") was the Landlord and the Defendant was the tenant of the premises known as Shop Nos. 204, 204A and 204B on the 2nd floor of the shopping centre and Units Nos. 101 and 102 on the 1st floor of Ban Fung House, Fung Tak Estate, Diamond Hill, Kowloon, Hong Kong (the "Premises").

[2] The Tenancy Agreement between the Defendant and HKHA commenced from 1/8/1992, for a term of 5 years 2 ½ months, ending on 15/10/1997 (the "Tenancy Agreement"). The terms of the Tenancy Agreement stated that the user of the Premises was restricted to the operation of a food plaza only.

[3] The Defendant was operating 6 food stalls on the Premises. Café de Coral Fast Food Restaurant and Ah Yee Leng Tong/Luk Ting Kee, both business units belonging to the same group of companies as the Defendant, occupied two of the food stalls. The others were licensed out to 4 individual restaurant operators.

[4] On or about 4/11/1995, the licensee to food stall no. 4, Towada Japanese Restaurant, terminated the licence and food stall no. 4 was vacant. On or about May 1996, the Plaintiff commenced negotiations with the Defendant for a licence to food stall no. 4.

[5] On or about 6/8/1996, the parties executed a licence agreement for food stall no. 4 (the "License"). The licence agreement was for a term ending 14/10/1997. The monthly licence fee was the higher of $10,000 or 10% of the gross monthly turnover, together with monthly management fee of $16,343 and air conditioning fee of $7,150. The License did not contain any right of renewal.

[6] In her original Statement of Claim and the Amended Statement of Claim, the Plaintiff alleged that prior to execution of the License, the Defendant's agent represented to her that the Defendant would have little trouble in renewing the Tenancy Agreement with HKHA and when the Defendant renewed the Tenancy Agreement, the Defendant would renew the License with the Plaintiff.

[7] On or about 7/9/1997, the Defendant informed the Plaintiff that it had failed to renew the Tenancy Agreement with the HKHA and all licensee must vacant the Premises on or before 14/10/1997. The Plaintiff complied with the request. However, on or about December 1997, the Plaintiff noticed that the Premises was being redecorated into a single Café de Coral fast food restaurant.

[8] In the original Statement of Claim, the Plaintiff alleged that she suffered loss and damage due to the Defendant's breach of its verbal representation and brought this action to recover the same. In the Amended Statement of Claim, the Plaintiff asserted an alternative claim for loss and damages representing the notional costs of relocating her business in the sum of $260,000.00.

The Plaintiff's Case:

[9] The Plaintiff alleged that when she first realized that the licence offered by the Defendant was only for a period of about 1 year and 4 months or up to 14/10/1997, she lost all interest because the term offered was too short. From her experience in the catering business, one could only make a profit in the long run.

[10] Mr. Tony C.W. Lau ("Mr. Lau") of the Defendant assured the Plaintiff that since the Defendant was a large company there would be no problem for it to renew the Tenancy Agreement with the HKHA. Mr. Lau further stated that the Defendant had applied to the HKHA to renew the Tenancy Agreement for a 3 years term but there had been no reply from the HKHA yet.

[11] In the Amended Statement of Claim and her witness statement, the Plaintiff alleged that Mr. Lau had also assured the Plaintiff that the Defendant would renew the License with the Plaintiff upon the Defendant's renewal of the Tenancy Agreement.

[12] After the Plaintiff had discussed the matter with her husband and younger brother, and due to Mr. Lau's assurance, the Plaintiff entered into the License with the Defendant.

[13] The Plaintiff incurred a total costs of HK$370,000.00, inclusive of license fees, in opening her business at the Premises. The business improved and was making a good profit. On or about 20/2/1997, the Plaintiff received a notice from the Defendant asking if she was interested in renewing her licence upon its expiry. The Plaintiff duly replied and confirmed her intention to renew the same. In the interim, the Plaintiff kept on calling Mr. Lau to enquire about the progress of the Defendant's negotiation with the HKHA. Mr. Lau had maintained that there was no progress.

[14] On or about 12/4/1997, the Plaintiff received a notice from the Defendant asking her to vacate the stall on or before 14/10/1997. The Plaintiff then called Mr. Lau to enquire. Mr. Lau told the Plaintiff that the said notice was only a procedural requirement and the Defendant had no intention of terminating the License.

[15] On or about July or August 1997, one of the Plaintiff's regular customers told her that the Defendant had successfully renewed the Tenancy Agreement with the HKHA. The Plaintiff immediately called Mr. Lau to confirm this; however Mr. Lau told the Plaintiff that the HKHA had not yet decided on the renewal of the Tenancy.

[16] On or about 7/9/1997, Mr. Yeung, the manager of the Premises and representative of the Defendant, informed all licensees of the Premises that the Defendant had failed to renew the Tenancy with the HKHA and all licensees must vacate the Premises on 14/10/1997.

[17] The Plaintiff then called Mr. Lau who confirmed Mr. Yeung's statement. The Plaintiff was forced to cease business and deliver up possession of the stall. After cessation of business at the Premises, the Plaintiff was unable to find alternative premises to relocate her business. Also the Plaintiff was able to obtain only HK$12,000.00 from a second-hand trader for all of her business equipments and apparatus.

The Defendant's Case:

[18] The Defendant's case was a simple one. Mr. Lau stated that he had never, at anytime, made any representation to the Plaintiff in respect to the renewal of the Licence.

[19] Although the Licence was for a short duration, the licence fee of HK$10,000 or 10% of the Plaintiff's gross turnover was substantially lower than the licence fees charged by the Defendant on the other licensees of the Premises.

[20] It was not until 4/12/1996 that the HKHA wrote the Defendant enquiring whether the Defendant wished to renew the Tenancy Agreement. Real negotiation for the continuation of the Tenancy Agreement did not start until June 1997.

[21] Since the Defendant was running the food plaza at substantial loss, on 18/12/1996 the Defendant asked the HKHA for a 40% reduction in rent if the Defendant was to continue to rent the Premises.

[22] In their reply dated 21/2/1997, the HKHA offered a monthly rental payment of HK$360,000, exclusive of rates, for the new lease term. On 28/8/1997, the Defendant made the following counter-offers:

(a) rental for the Premises at HK$270,000 per month for a 3 years term; or

(b) rental for only the 2 stalls operated by the Defendant's related companies, at the higher of either HK$130,000 or 12.5% gross monthly turnover, for a term of 6 years.

[23] On 4/9/1997, the HKHA countered the Defendant's offer by an offer of a monthly rental of HK$330,000 for a term of 3 years. The Defendant then revised its offer to HK$270.000.

[24] In or about September 1997, since the HKHA and the Defendant have not yet reached any agreement the Defendant made plans to vacate the premises by 14/10/1997 and issued notice to all licenses to do the same.

[25] By 12th or 13th October 1997, all licensees had surrendered possession of their stalls and the Defendant was ready to complete demolition of the furnishings. However, the Defendant received a telephone call from HKHA suggesting that the rental rate of operating a single fast food restaurant would be lower than the rental rate for a food plaza.

[26] After further negotiations, the Defendant gave HKHA an offer to rent Shop Nos. 204, 204A and 204B only (without units 101 and 102) for a term of 6 years, at the monthly rent of the higher of HK$230,000 or 13% of the monthly gross turnover for the first 3 years and at the monthly rent of the higher of HK$285,000 or 13% of the monthly gross turnover for the remainder of the term, for a single Chinese fast food restaurant. On 11/12/1997, the HKHA accepted the Defendant's offer.

[27] The aforesaid agreement between the Defendant and the HKHA was contained in a letter dated 15/1/1998 and the parties entered into a new tenancy agreement dated 27/2/1997 (the "New Tenancy Agreement").

The Re-amended Statement of Claim:

[28] At 3:30 pm on 31/1/2002, the day before trial, the Plaintiff filed a summons asking for leave to re-amend the Statement of Claim. The summons could only be heard on the day of the trial. Mr. Kent Yee, counsel for the Defendant, advised me that the said summons was received by Messrs. King & Company, solicitors for the Defendant, at 5:15 p.m. on the afternoon of 31/1/2002. As a consequence, neither he nor Messrs. King & Company had any opportunity to receive instructions on the said summons.

[29] The re-amendment to the Statement of Claim consisted of a completely new allegation. In addition to alleging that the Defendant had represented to the Plaintiff that the Defendant would renew the Plaintiff's licence if the HKHA renewed the Tenancy Agreement, the Plaintiff added that the Defendant also represented it would renew the Licence if the Defendant remained as a tenant of Shop units 204, 204A and 204B.

[30] After I expressed my dissatisfaction of the late amendment to Mr. Thomas Au, counsel for the Plaintiff, I granted Mr. Yee's application for a short adjournment to review the re-amendment and receive instructions on the same.

[31] After the adjournment, Mr. Yee submitted that he could deal with the re-amendment and file a Re-amended Defence by 2:30 p.m. on the same day. I ensured that Mr. Au would not require an amendment to the Reply and no further witness nor documentary evidence will be relied upon as a result of the re-amended Statement of Claim and Defence, I then granted the adjournment and the hearing commenced at 2:30 p.m.

Issues:

[32] In his final submission, Mr. Yee submitted that there were 5 issues to be decided in this matter:

a) As a matter of fact, whether the Defendant agreed with the Plaintiff that in the event of (i) the HKHA renewing the Tenancy or (ii) the Defendant remaining a tenant of the shop units after the expiry of the Tenancy, the Defendant would renew the License with the Plaintiff on the same term?

b) As a matter of fact and law, if the Defendant did so, whether the application of the parole evidence rule prevents the said agreement from becoming an oral term of the Licence Agreement?

c) As a matter of law, if the said agreement was an oral term or a collateral warranty, whether the said agreement had contractual effect and was binding and enforceable?

d) As a matter of fact, if the said agreement was so, whether the Defendant breached the said agreement, be it an oral term or a collateral warranty?

e) As a matter of fact, if the Defendant did so, whether the Plaintiff proved any loss suffered as a result of the breach which should be recoverable?

[33] I agree with Mr. Yee that the issues he suggested were a chronological method of dealing with this matter; however, before we commence, it will be helpful to determine what Mr. Lau actually said to the Plaintiff that led her to believe in the event of (i) the HKHA renewing the Tenancy or (ii) the Defendant remaining a tenant of the shop units after the expiry of the Tenancy, the Defendant would renew the License with the Plaintiff on the same term.

Findings:

[34] In or about May 1996, when the Plaintiff expressed interest in food stall No. 4, it had already been vacant since 4/11/1995. It was natural for Mr. Lau to want to licence out the food stall to the Plaintiff as soon as possible. Especially when the Defendant was operating the food plaza at a substantial loss at the time.

[35] It was also natural for the Plaintiff to be concerned with the term of the License. After all, the Plaintiff's ability to earn a profit on the business venture depended on how long she could amortize her investments on the decorations and fixtures to the food stall.

[36] Irrespective of Mr. Lau's denial, I had little problem in finding that he did make certain representations to the Plaintiff, in order to induce her to enter into the License. The difficulty in the Plaintiff's case was what was the representation and whether the Defendant breached those representations.

[37] In the Statement of Claim and the Amended Statement of Claim, the Plaintiff's sole allegation on the Defendant's representation was contained in paragraph 6:

"6. It was an express oral term of the Agreement ("the Oral Term") that in the event of HKHA renewing the Tenancy, the Defendant would renew the Licence with the Plaintiff for the same term." Emphasis added

[38] Paragraph 6 of the Amended Statement of Claim was Re-Amended and a second representation was added:

"6. It was an express oral term of the Agreement ("the Oral Term") that in the event of HKHA renewing the Tenancy or of the Defendant remaining as a tenant of the Shops after the expiry of the Tenancy, the Defendant would renew the Licence with the Plaintiff for the same term." Re-amendment in italic

[39] I will deal with the 2 alleged representations separately.

[40] The problem with the first alleged representation was that even if I found that Mr. Lau had made the alleged representation to the Plaintiff and that it was an oral term of the Licence or that it was a collateral warranty, if HKHA did not "renew" the Tenancy Agreement with the Defendant, there was no breach.

[41] "Renewal of Lease" was defined in The Concise Dictionary of Law, Oxford University Press, 1986 as follows:

"The grant of a fresh lease on similar terms to those of a pre-existing lease between the same parties. A lease sometimes contains a clause that gives the lessee an option to renew the lease when it expires. If the renewal is to be on the same terms, including the option to renew, the lease is known as a perpetually renewable lease;..." Emphasis added

[42] My review of the Tenancy Agreement and the New Tenancy Agreement revealed the following differences:

(1) The leased premises in the New Tenancy Agreement were different from the leased premises in the Tenancy Agreement. Units 101 and 102 were not included in the New Tenancy Agreement.

(2) The user of the Tenancy Agreement and the user of the New Tenancy were different. Clause 22 of the Tenancy Agreement restricted the use of the Premises to the operation of "a Food Plaza" only, while clause 23 of the New Tenancy Agreement stated that the Premises was to be used solely as "a Fast Food Restaurant".

(3) Consistent with the use of the Premises as a Food Plaza, under clause 19(c) of the Tenancy Agreement, the Defendant had a specific right to grant licences to third parties for the purpose of providing a list of food that was specifically stated; while Clause 20 of the New Tenancy Agreement prohibited the Defendant from assigning, sub-letting or part with the possession of the leased premises or any part thereof without the prior written consent of HKHA.

(4) The rents under the Tenancy Agreement was measured by a fixed lump sum figure (HK$274,688 for the period from 1/8/1992 to 15/10/1994 and HK$343,310 for the period from 16/10/1994 to 15/10/1997), while the rents under the New Tenancy Agreement was calculated as the higher of a fixed lump sum or a percentage of the Defendant's monthly gross receipt (HK$230,000 or 13% for the period from 16/10/1997 to 15/10/2000 and HK$285,000 or 13% for the period from 16/10/2000 to 15/10/2003).

[43] Given the fact that : (1) the leased premises were different, (2) the users were different, (3) the Defendant no longer had any right to licence part of the leased premises to third parties and (4) the formula for calculating rents has been substantially changed, I found that the New Tenancy Agreement was not "The grant of a fresh lease on similar terms to those of a pre-existing lease between the same parties". Since there was no renewal of the Tenancy Agreement, the Defendant could not have been in breach of its representation to the Defendant, regardless of whether the representation was held to be an oral term of the Licence or a collateral contract.

[44] In respect of the second allegation, what exactly did Mr. Lau say to the Plaintiff, which led the Plaintiff to conclude "if the Defendant remaining as a tenant of the Shops after the expiry of the Tenancy, the Defendant would renew the Licence for the same term"?

[45] All of the Plaintiff's witnesses, including the Plaintiff herself, her husband, Mr. Lam Hin Man, and her brother, Mr. Lee Kwai Sang, stated that although Mr. Lau had said the Defendant was a large corporation and there was little chance that the HKHA would not renew the Tenancy Agreement, none of them was able to point to any specific wording that would lead a reasonable person to believe that "if the Defendant remaining as a tenant of the Shops after the expiry of the Tenancy, the Defendant would renew the Licence for the same term".

[46] The only consistent statement that all 3 Plaintiff's witnesses said they heard from Mr. Lau was the phrase "我有得做, 你有得做" meaning, "If I stay in business, you stay in business".

[47] Leaving aside the issue of whether the Plaintiff's witnesses' testimonies were believable or not and assuming that Mr. Lau did utter those exact words "我有得做, 你有得做" to the Plaintiff: Were those words sufficient to lead the Plaintiff into believing that "if the Defendant remaining as a tenant of the Shops after the expiry of the Tenancy, the Defendant would renew the Licence for the same term"?

[48] The Defendant is a member of a huge group of corporations, with hundreds of different restaurants and other businesses scattered all over Hong Kong. When Mr. Lau said "我有得做, 你有得做", no reasonable person could have taken that phrase as a blanket assurance that if the Defendant stayed in business, in any of its forms, the Defendant would renew the Licence with the Plaintiff on the same terms.

[49] Any interpretation of the phrase "我有得做, 你有得做" must take into account of the relationship between the parties at the time the phrase was uttered. At the relevant time, the Defendant and Plaintiff were dealing with each other as licensor and licensee of the food plaza. The meaning of the word "做" or "business" can only be reasonably taken to mean the business of being a licensor of the food plaza.

[50] The New Tenancy Agreement no longer permitted the Defendant to operate a food plaza. In other words, the Defendant did not stay in "business" as a licensor and even if I had found that Mr. Lau did utter the exact words "我有得做, 你有得做" to the Plaintiff, the Defendant did not have any obligation to renew the Plaintiff's licence because it did not remain in "business".

[51] Having concluded that, even taking the Plaintiff's allegations to its highest, the Defendant did not breach its obligations, there was no need for me to resolve the other issues submitted by Mr. Yee.

Order:

(1) The Plaintiff's claims are dismissed.

(2) Costs of this hearing is to the Defendant, with certificate for counsel, to be taxed on a Party/Party basis unless agreed.

(3) The Plaintiff's own costs is to be assessed in accordance with Legal Aid Regulations.