XCHRX LAM SHUN KWAN v. CHIEFART INVESTMENTS LTD.

HCA 9240/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9240 OF 1999

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J U D G M E N T

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1. This is an appeal against the decision of Master Jones on 4 October 1999 entering summary judgment against the Defendant.

2. The facts are not in dispute and are fairly straightforward. The action concerns a property in Tsuen Wan of which the Defendant was the owner and the Plaintiff was the prospective tenant. It appears not to be in dispute that: -

1. The property had been let by the Defendant to a third party ("the existing tenant") for a period of 3 years from 1 November 1996 to 31 October 1999, with a tenancy agreement that was registered in the Land Registry against the property.

2. The parties hereto entered into a Provisional Tenancy Agreement on 18 July 1998 whereby the Defendant was to let the property to the Plaintiff with the benefit of vacant possession for a term of 3 years from 1 February 1999 with an option to renew for a further term of 2 years.

3. The Provisional Tenancy Agreement was set out on a standard printed form supplied by an estate agent who participated in the agreement being concluded. The form contained blank spaces to be filled in for the details of the parties, the details of the property, the term and the rental of both the rental period and the optional renewal, the rent-free period, the deposit money, the usage of the property, the respective responsibilities for rates, management fees, stamp fees and agency commission, and the penalties for default by either of the parties.

As is common in many standard form documents there was a column headed "Remarks" at the end of the form for the parties to deal with any matters not included in the printed clauses above.

4. The "Remarks" column dealt with 3 matters, namely

(a) Government rent on the property

(b) Whether delivery of the premises by either party to the other should require it to be cleaned or any decorations removed

(c) If the Defendant received vacant possession from the existing tenant on a date inconsistent with the commencement date of 1 February 1999 -

(i) If vacant possession was not provided by 1 February 1999 then the commencement date could be delayed for 2 months.

(ii) If vacant possession was still not provided by 1 April 1999 then the Plaintiff and the Defendant "should further negotiate to make arrangements".

(iii) If vacant possession was provided before 1 February 1999 the Defendant should give to the Plaintiff one month's prior notice whereupon the Plaintiff must complete the tenancy agreement with the terms and conditions coming into effect upon receipt of vacant possession.

5. In accordance with the terms of the Provisional Tenancy Agreement, the Plaintiff paid the agreed initial deposit of $210,000.00.

6. The existing tenant did not deliver up vacant possession of the property to the Defendant by 1 February 1999 or 1 April 1999.

7. In accordance with Clause 5 of the Provisional Tenancy Agreement, the Defendant sent to the Plaintiff on 29 July 1998 a draft Tenancy Agreement in respect of the property. The Agreement was never executed. Clause 15 of the draft was in terms of Remarks (3) in the Provisional Tenancy Agreement.

8. On 14 October 1998 the Defendant's solicitors wrote to the Plaintiff informing him that: -

(a) The existing tenant would not deliver up vacant possession of the property until the completion of her tenancy agreement in October 1999; and

(b) In pursuance of the Provisional Tenancy Agreement, the Plaintiff was asked to elect whether:

(i) he wished to commence his tenancy in October 1999 when vacant possession would be available; or

(ii) he wished to have his deposit money refunded without interest

9. On 24 December 1998 the Plaintiff's solicitors replied asserting that the Defendant was in anticipatory breach of the Provisional Tenancy Agreement and purporting to accept the same. They also asserted the Plaintiff's right to a payment of double the initial deposit paid and damages.

10. On 13 January 1999 the Defendant's solicitors wrote to the Plaintiff's solicitors denying anticipatory breach and repeating their options offered in their letter of 14 October 1998. The Plaintiff denies receiving this letter.

11. On 28 April 1998 the Defendant's solicitors wrote to the Plaintiff's solicitors informing them that the existing tenant was still in possession of the property and repeating their options offered in their letter of 14 October 1998.

12. On 30 April 1998 the Defendant's solicitors wrote to the Plaintiff's solicitors informing them that:

(a) The Provisional Tenancy Agreement would be treated as null and void for lack of certainty over the delivery of vacant possession unless a response was received within 7 days in which event the deposit money would be refunded to the Plaintiff; and

(b) Again repeating the options offered in their letter of 14 October 1998.

3. The dispute centres around the interpretation of Clause 1 and Remarks (3) in the Provisional Tenancy Agreement.

4. It is the Plaintiff's case that Clause 1, supported by other provisions in the agreement, makes clear beyond peradventure that the only term agreed was one of 3 years commencing on 1 February 1999. The terms of Remarks (3) are only remedial steps to be taken in the event of the Defendant's breach of the agreement. Further, the Plaintiff says that any negotiation machinery provided under Remarks (3) was unavailable because the Defendant, by its various solicitors letters, had left nothing on the table over which to negotiate.

5. The Defendant says that: -

(a) There has been no repudiation and that:

(i) The terms of the agreement clearly provide for circumstances where vacant possession would not be available by 1 February 1999 or 1 April 1999 and that therefore the parties were always aware of that position and provided specifically for it by Remarks (3).

(ii) The Defendant had repeatedly tried to negotiate with the Plaintiff in accordance with Remarks (3) since 14 October 1999.

(b) The Defendant used every opportunity to negotiate with the Plaintiff but was rebuffed by the Plaintiff's silence.

(c) The Plaintiff's claims in the Statement of Claim go beyond his entitlement under the Provisional Tenancy Agreement in that

(i) Since the Defendant was not in breach there is no liability for twice the initial deposit

(ii) The Agreement provides for the cost of stamp duty to be shared equally and there is no basis for claiming the whole amount

(iii) In the absence of evidence showing the Defendant's liability for late stamping, the fee for the same should not be recoverable against him.

(iv) The estate agent's commission is payable to the agent and not the Plaintiff, and in the absence of any evidence of any payment by the Plaintiff on behalf of the Defendant, the same is not recoverable by the Plaintiff.

6. This appeal raises serious issues of interpretation of Remarks (3) in the context of the other provisions of the Provisional Tenancy Agreement.

7. I have been referred to various authorities from which it is clear that in interpreting the terms of an agreement it is right and proper to have regard to the circumstances surrounding the entering into of the agreement.

8. The authorities also show that it is permissible to have regard to the understanding and interpretation (regardless of accuracy) of the parties in relation to the terms of an agreement. In that regard, the draft Tenancy Agreement prepared by the Defendant, and in particular Clause 15 and the Schedule thereof, demonstrate the Defendant's understanding of the terms reached.

9. The terms of Remarks (3) are not without difficulty. They appear at first sight to be in conflict with Clause 1. It may also be said that they provide an extension of the terms of Clause 1. What is clear is that on their face, the terms of Remarks (3) appear to be intended to deal with the circumstances when the parties may be prevented from fulfilling what they had otherwise intended by the intervention of the existing tenant.

10. It seems to me that the matter is not so clear-cut as offering no other reasonable explanation. In those circumstances, the matter should go to trial for the issues to be fully investigated. I am further not satisfied that there is evidence to support all the elements of the Judgment sum of $538,900.00.

11. In the circumstances the appeal will be allowed. I will hear counsel on any other matters arising.