LAI KAM HING v. LAW KING YIN AND OTHERS

HCA3649/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3649 OF 2001

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J U D G M E N T

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1. The 1st defendant, Madam Law, and her four sons, respectively the 2nd to the 5th defendants, are the owners of a shop at the ground floor, No. 89 Shek Pai Wan Road, Aberdeen. The 1st defendant bought the property in 1962, and gave shares to her sons by a Deed of Gift in January 2000. Above the shop there is a cockloft or mezzanine floor (I will call it the "internal cockloft"), which is entered by a door from the common stair of the building, and cannot be entered from the shop. The cockloft has windows to the front and rear of the building and outside the windows, at both front and rear, a small walled platform or balcony. In 1978, for storage purposes, the 1st defendant had a cockloft extension built at the front of the property; it was effectively a box structure overhanging the pavement on Shek Pai Wan Road, with its bottom at the height of the balcony wall and its top abutting the first floor which extends out over the pavement. I will refer to it as the "external cockloft extension".

2. The shop was originally used for the 1st defendant's own business, and she says that she used the internal cockloft for an office and for storage. Later the shop was leased to other businesses. It became vacant in early 2000, and the family advertised it for letting by putting up a notice at the front of the shop. The plaintiff, Mr Lai, saw the notice and contacted the 3rd defendant, Mr Ng Ching Ming, or Jimmy Ng. After negotiations, the parties entered into a written tenancy agreement dated 7 June 2000, for a term of three years from 16 June 2000, at a rent of $20,000.00 per month. The plaintiff paid a deposit of $40,000.00.

3. The plaintiff rented the shop in order to operate a snack and fast food café there. He set up his café, which he called "Time House", and started to do business in early July 2000. He received a letter from the Buildings Department dated 27 July 2000 notifying the occupier of the property that the external cockloft extension was an illegal structure and should be removed. He applied for a restaurant licence on 5 August 2000, but on 30 August the Food and Environmental Hygiene Department ("FEHD") notified him that his plans were unsatisfactory in view of comments from the Buildings Department. In brief, that Department objected to the issue of the licence on the grounds that the "cockloft overriding the whole" was unauthorised and should be removed and the premises reinstated in accordance with the approved plan, and also that the dilapidated metal sheets with associated frames over the back yard should be removed. For simplicity I will call this structure "the tin roof".

4. Then the plaintiff received from the FEHD a Notice of Intention to Apply for Prohibition Order dated 31 September 2000 (sic). The application was to come before the Magistrate on 23 October. He decided he could not carry on, and he closed the restaurant on about 8 October. At a meeting on 17 October, he surrendered the property and returned the key to the 1st defendant. He wanted the defendants to give him back his deposit, but they would not.

5. Now the plaintiff claims that in order to induce him to enter into the tenancy agreement, the defendants represented to him that there were no illegal structures in the property. He pleads that :

(1) the 3rd defendant, in a telephone conversation on about 24 May 2000, when asked, represented that there were no illegal structures in the property;

(2) when he was inspecting the property on 28 May, the 1st and 3rd defendants, when asked, represented that the internal cockloft and the tin roof were legal;

(3) on the same day, in a restaurant nearby, the 1st and 3rd defendants made the same representations; and

(4) immediately before the signing of the tenancy agreement, when asked, the 1st and 5th defendants represented that there were no illegal structures in the property.

6. In the alternative, the plaintiff pleads that the defendants, by making these representations, gave him a collateral warranty that there were no illegal structures in the property; and further that the act of showing him the property amounted to a representation that the defendants had title to the whole of the property and could let it, and that it would not be diminished by the need to remove unauthorised structures. He says that the representations were untrue and made recklessly.

7. The plaintiff claims that he repudiated the tenancy agreement by returning the keys. He claims rescission of the agreement and costs of $20,000.00 incurred in applying for the licence, $372,050.00 in respect of decoration expenses, $147,775.40 for equipment bought and installed in the shop, $2,500.00 as a business registration fee, and loss of profits at the rate of $30,000.00 per month for 32 months, or $960,000.00.

8. The defendants' case is that they did not make any representations. They say it is for the plaintiff to investigate illegal structures and refer to clause 2(x) of the tenancy agreement which provides inter alia that the landlord does not warrant that the property is suitable for any purpose.

9. The defendants admit a telephone conversation in late May but deny making any representations in the course of it. They say that only the 3rd defendant showed the plaintiff the shop on 28 May 2000, and no representations were made.

10. The defendants admit showing at the plaintiff the property on 28 May, but aver that only the 3rd defendant was present. They say that no representations were made. They say that there was another inspection on 30 May, at which only the 3rd defendant was present with the plaintiff and those accompanying him, and a meeting on the same day in a restaurant, but deny making any representations on either occasion. They say that a few days later, the plaintiff inspected the shop with the 1st defendant, asked her if the small balcony at the back was an illegal structure, and was told that she did not know. They also deny making any representations at the solicitors' office, when the lease was signed.

11. The defendants further aver that the plaintiff in early October 2000 asked the 5th defendant for removal of the external cockloft extension, on the ground that because of it, he could not get his licence. The 5th defendant asked the plaintiff to produce the letter from the relevant government department, but it was never produced. Later, the plaintiff asked for early termination, on the ground that he could not get the licence because of the external cockloft extension.

12. The defendants plead that the plaintiff's repudiation of the lease was wrongful. They rely on clause 2(x) of the tenancy agreement which provides for it to become null and void if the government prohibits the tenant's business but without prejudice to the landlord's right of action for earlier breaches.

13. They further plead that if any representations were made, which is denied, the same were innocent because they had reasonable grounds to believe and did believe that there were no illegal structures. Particulars of the grounds are given; I will not reproduce them here. They also say that to the extent that the plaintiff suffered loss in fitting out the café before his proposed layout plan had been approved, those losses were self-induced.

14. There is a counterclaim for loss of rental at $20,000.00 per month from 17 October to 15 June 2003, and loss of rates and outgoings of $351.50 per month. The defendants also claim costs of reinstatement and interest, and they say there are entitled to retain the deposit.

15. The plaintiff's evidence was that after working as a fisherman he decided to open a restaurant in about October 1999. He had no relevant business experience but had heard at that he could make a living in that way, and had obtained advice from his friends and relatives about how to start. He was told that he had to make sure that in the property where he opened the restaurant there should be no illegal structures because if there were any he would not be able to get a restaurant licence.

16. On about 24 May 2000, he saw the advertisement at the shop, and telephoned the number given. He spoke to the 3rd defendant. He asked what the rent would be, and if there were any illegal structures in the shop. He told the 3rd defendant that he intended to run a catering business there. The 3rd defendant told him that there were no illegal structures and the rent was $22,000.00.

17. The plaintiff thought the rent too high, but he made arrangements to inspect the property on 28 May 2000, at 12:30 p.m. In the meantime he telephoned his friend Ms Chang Sung Hue who had previously tried to open a Chinese restaurant. She told him to make sure that if he was opening a fast-food shop, there should be no illegal structure in it. He got the same advice from his elder brother who had himself operated a restaurant.

18. The plaintiff went to the inspection on 28 May with his wife, one son, one daughter and Ms Chang. The 1st and 3rd defendants both came. During the inspection, he noticed a hole in the ceiling about six feet square, partly covered with planks. The 3rd defendant told him that it was a cockloft. He asked if this was illegal and the 3rd defendant said that it was not.

19. The plaintiff went into the back yard, to get a bamboo pole which he poked through the hole in the ceiling; it went right through into the cockloft. In the back yard he saw the dilapidated tin roof. He asked the 3rd defendant if that structure was legal; and the 3rd defendant said that it was. The 1st defendant said that it had been the same for tens of years after she had bought it, and if it was illegal, the government would have demolished it.

20. After the inspection, they all went to the Tai Woo Restaurant nearby for further discussion. The plaintiff offered rent of $16,000.00 per month which the 1st defendant refused. Ms Chang said that the shop was to be used as a fast food shop, so if there was anything illegal about it at the plaintiff would not be able to get a licence. The 3rd defendant said that there was nothing illegal in the place; if there had been, the government would have sued the owners long ago and made them remove it. The plaintiff asked them to recall clearly if there was any illegal structure, because if there was, he would not be able to get his licence. He was suspicious; he asked the 1st defendant for sight of the title deeds. But she said that she did not have them with her and at her age, she would not deceive him. So he believed the defendants.

21. The plaintiff said that he did not inspect the property again, but after a few days he spoke to the 3rd defendant on the telephone, and they agreed the rent at $20,000.00 per month.

22. On 7 June 2000, the plaintiff went by arrangement to the office of Miss Elaine Tam, a solicitor, and there met the 1st defendant and the 5th defendant, Ng Yu Ming, Simon. It was agreed that the plaintiff would pay a deposit of $20,000.00 and an advance rental payment of $20,000.00, plus one month's rent of $20,000.00. The solicitor told him that he could not use the shop for any illegal purpose and asked him what business he could do. He said that he intended to serve noodles and western-style food. Then, in that the presence of the solicitor, he again asked the defendants if there was anything illegal in the shop. He said that if there was, he could not get a licence. The 1st defendant again said that nothing was illegal, and he trusted her.

23. The plaintiff was sure that the lease was signed on 7 June because he had to take leave from the work he was then doing in a fast food shop. In fact he says that he went off later the same day and ordered a stove for the kitchen, and he identified the dated receipt for it.

24. After the plaintiff had signed the lease, he started having the premises decorated. He said that he had paid $372,050.00 to a decoration company, but ultimately had only been able to pay $155,050.00 and was still owing the balance. He had agreed to paid $40,000.00 to a company called Gold Chak to apply for the licence on his behalf, but had only paid them $20,000.00. He had paid a total of $147,775.40 for equipment. He had started business on 9 July 2000. After payment of his running costs, his net income was $32,000.00 per month, and in support of this, he produced a tax assessment which he said was based on the figures given by him to the Inland Revenue Department. In all, in order to open the restaurant, he had borrowed about $420,000.00 from his friends and relatives.

25. The plaintiff said that he received a letter dated 26 July 2000 from the government informing him of an illegal structure on the premises. He telephoned the Buildings Department and was told that external cockloft extension was illegal. He told the 3rd defendant of this and the 3rd defendant said that he would come and get the letter, and would have the external cockloft extension demolished. The 3rd defendant also said that he had received a similar letter. In fact the 3rd defendant later visited the shop, took away the letter and again promised to demolish the cockloft extension.

26. Later the plaintiff received the documents from the FEHD refusing his licence application. He telephoned the 3rd defendant and told him that the entire cockloft was illegal. But the 3rd defendant said that only the external cockloft extension was illegal, and would be demolished as soon as possible; the internal cockloft and the tin roof were both legal.

27. After a couple of weeks, the 3rd defendant had done nothing about the demolition, so the plaintiff contacted him again. This time the 3rd defendant said that he had spoken to the 5th defendant, who said that the external cockloft extension was legal. The plaintiff did not believe this, and himself telephoned the 5th defendant who told him that everything was legal and this was clearly stated in the title deeds. He telephoned the 1st defendant and got the same response. He asked to see the title deeds but this was refused. So he went to see the solicitor, Miss Tam Chi Ling ("Miss Tam"). She advised him that there was a clause in the lease which would be beneficial to him in that if the other party was in breach, the tenancy would automatically be rescinded.

28. After this the plaintiff received the notice from the FEHD that a prohibition order would be applied for. He told the 3rd defendant who insisted that only the external cockloft extension was illegal. He telephoned the 1st defendant who insisted that there was no illegal structure but later admitted that there was a minor illegal structure inside the shop. He telephoned the 5th defendant who insisted that the internal cockloft was legal and would in any event cost $200,000.00 or $300,000.00 to remove.

29. The plaintiff realised that he could not get a licence. He decided to stop his business and this he did on 9 October. On 10 October, as he was clearing up inside, the 3rd defendant and his cousin arrived at the shop. The 3rd defendant said that it was not his fault that the plaintiff could not get a licence, but the fault of the agent who had applied for the licence. He said that he would forfeit the plaintiff's deposit and advance payment totalling $40,000.00. The plaintiff did not agree to this and they agreed to go to Miss Tam's office to discuss the matter.

30. On 17 October 2000, the plaintiff met the 1st defendant, the cousin and an unknown lady at the solicitor's office. Miss Tam explained the content of the tenancy agreement. The parties could not reach any settlement. They went to discuss the matter further in a restaurant. The plaintiff wanted them to give him back his deposit of $40,000.00, but they would not. Ultimately, it was agreed that the landlord would take the keys back but the defendants insisted on forfeiting the deposit.

31. The plaintiff said that he could not sell the equipment from the restaurant although ultimately through the agency of the 5th defendant he managed to sell some of it for $5,300.00. Before this sale, the 3rd defendant suggested that he carry on the business, changing the name from time to time, but this he refused to do because he did not want to do anything illegal. The 3rd defendant then told him not to demolish anything in the shop, and said that he would get someone else to go in and carry on the business there. To this the plaintiff agreed. He just left his equipment behind, because it was worthless and he did not know how to sell it. After that, he became a casual worker and then a sailor on the Star Ferry. He gave evidence of the earnings he had been able to make, since he had had to cease business, as against what he could made if he had been able to carry on.

32. He said that if he had known that there were illegal structures in the property, he would never have entered into the tenancy agreement, but would have gone elsewhere, because he knew that if there was any illegal structure in the shop he leased, he could never get a licence.

33. The plaintiff was cross-examined at great length and I will not attempt to rehearse in detail what he said. However, it became apparent from cross-examination that he was insisting that the tenancy agreement had been signed on 7 June though he ultimately had to accept that it had not, for he had signed a receipt for the key dated 2 June. It was put to him that he could have asked for a clause to be added to the tenancy agreement dealing with illegal structures but he said that because he believed the defendants, that the property was legal, such a clause would not matter.

34. It appeared from the plaintiff's statement that he had signed a tenancy agreement of only several pages. He was asked if the tenancy agreement before him was the same one as he had signed, and he said that it was not. Some pages had been added since he signed it. He had been given a counterpart of the lease in early August, and he said that when he had gone to see Miss Tam to have the tenancy agreement explained to him, after he received the letter from the Buildings Department about the external cockloft extension, he had asked her about these additional pages. After some evasion, he said that she had not responded to his questions. This matter was pursued, and the plaintiff said that he had later shown the tenancy agreement to a legal executive in the firm now representing him. This person had told him that what was in the tenancy agreement was quite different from its content. He said that some of the contents that he knew about when he discussed the tenancy agreement were not included in it. Nevertheless, the plaintiff had not taken this up with any authority such as the Law Society, although he had mentioned it to the Legal Aid Department when applying for legal aid for this case.

35. It further appears from cross-examination that he started the actual fitting out of the café shortly after he obtained the keys. About this time, he instructed a Miss Chan of Gold Chak to design the café and its kitchen. This company applied for the licence on his behalf on 5 August 2000. The layout plan is dated 2 August. The plaintiff said that he had instructed the fitting out company to decorate the restaurant in accordance with this plan even though they had started at a much earlier date.

36. When asked if he had made any enquiries about the method of obtaining the licence, he said that he had left this to Miss Chan. There had been some mention of illegal structures, and she had asked him if there were any. He had told her that he did not know, but the landlords said that there were none. Miss Chan apparently accepted this. It seems that the plaintiff did not tell Miss Chan or her company of the notification received from the Buildings Department that the external cockloft extension was illegal.

37. The second witness for the plaintiff was Ms Chang Sung Hue. She said that the plaintiff contacted her in about May 2000 for her advice on opening a restaurant because she had some experience of this. She advised him that the shop that he used should not have any illegal structure and that if it did he would not get a licence. She told him to be careful about it.

38. Ms Chang said that she went with the plaintiff, his wife, son and daughter to the shop on 28 May 2000, between 12:00 noon and 12:30 p.m. Then the 1st and 3rd defendants arrived and all went into the shop. Near the rear shop, Ms Chang saw that there was a small hole in the ceiling, with some wooden boards over it. The plaintiff asked the 3rd defendant what this was and whether it was built by him. The 3rd defendant said that it was not built by him, and that it was the original structure. The plaintiff asked if it was illegally built but the 3rd defendant said that it was all legal.

39. They then went into the back yard. The plaintiff asked the 3rd defendant if the tin roof had been built by him and he said that it was not and that it was all legal. The inspection at the shop took about 20 minutes. Ms Chang heard what the 3rd defendant said, but did not hear what the 1st defendant said.

40. Everyone then went to the Tai Woo Restaurant. The plaintiff and his wife, son and daughter, the 1st and 3rd defendants and Ms Chang all sat together. Ms Chang told the defendants that the plaintiff wanted to rent the shop to operate a restaurant or small café. He would sell noodles and drinks and would have to apply to the government for a restaurant licence. If there was any illegally built structure, he would not be able to get the licence and so could not do business. The 3rd defendant said that there were no illegally built or unlawful structures at the shop. If there had been, he would have been sued by the government long since, and made to demolish them. The 1st defendant said that the structure in the shop had been there right from the beginning, for tens of years, and it was lawful. She also said that there were other cafés operating in the same street and there was no problem with the shop.

41. They went on to discuss the rent, and in the course of this there was again a mention of illegal structures. The plaintiff said that there was no point in renting the place if there were any. However, the 3rd defendant again emphasized that there were no illegal structures, and the 1st defendant said that she would not deceive them in her old age. After a while, the 3rd defendant went off to get his parked car. Later, the plaintiff's younger daughter also arrived. The party had their food and they left.

42. Ms Chang was cross-examined first about the hole in the ceiling. According to her it was much smaller than that described by the plaintiff. It was about the area of two box files or something like 1'6" x 1'. There were wooden planks, and there was a hole. She did not believe it was a ceiling or part of the ceiling, she believed it was a cockloft. It was somewhere near the back door, but not, apparently, in the same position as that identified by the plaintiff from the photographs. She said that she sensed that there was a cockloft above, because she felt that there was some thickness to it. She did not see if the plaintiff had poked a stick into the hole.

43. She said that she went into the back yard with the plaintiff at one stage. At other stages, however, she had been talking to his wife about the partition in the shop, and she had not been with him all the time. The 1st defendant had been in the shop, but she was not clear as to whether or not he had gone into the back yard again. It was put to her that when she went to the Tai Woo Restaurant, the 1st defendant was already there, but she said that they had all gone together to the restaurant.

44. The defendants called the solicitor, Miss Tam, as a witness. In fact, she had been summoned by subpoena to produce her file, and had produced it on the first day of the trial. Subject to the exclusion of some documents on the ground of privilege, the file was before the court.

Miss Tam said that the plaintiff came to her office along with the 1st and the 5th defendants to sign the lease on 2 June 2000. The agreement was in fact dated 7 June because not all the landlords had been able to sign at the same time, and she had dated the agreement on the day when the last of the defendants had signed.

45. She charged the plaintiff and the defendants for her services in equal shares. They shared both the stamp duty and the costs. Before they signed, she explained the tenancy agreement; in accordance with her usual practice she had gone through it with them paragraph by paragraph. The agreement as signed was in fact the third draft. She had made a first draft containing the basic terms which the 1st defendant had given her by telephone. When the parties came to her office the first thing that they discussed was the rent which she thought had been agreed. She went out of the room and left them to discuss the matter, and when she came back they told her that the rent was agreed at $20,000.00 per month but there was to be a rent-free period from 2 to 15 June. Therefore the agreement was redrafted to include the rent-free period. After that she explained the whole agreement to them but then the plaintiff said that he wanted to be able to terminate the lease if he had no business. There was some discussion of this and eventually, the landlords agreed to a clause to permit the tenant to break the lease after 12 months, on two months' notice. The third draft was prepared to include this.

46. Miss Tam said that she went through the lease clause by clause and, in particular, explained clause 2(x) and there was no particular response when this clause was mentioned. As she went through the lease, and indeed in the whole of the course of the meeting, there was never any mention on either side of illegal structures in the shop to be leased.

47. Miss Tam said that the parties came to see her again on 17 October. However, some time before that, she could not remember when, the plaintiff came alone to see her. He telephoned her first and told her that he could not get a licence and that he wanted to show her a letter from a government department. On this occasion she explained clause 2(x), which catered for this situation, and also some of the other clauses dealing with reinstatement and rental deposit.

48. On 17 October, the 1st defendant, the plaintiff and another man and a woman had come to see Miss Tam. The 1st defendant asked her to interpret or explain clause 2(x) again. She did so, and she charged them a fee for it, although there were some arguments between them as to who would pay it. Ultimately, the 1st defendant had paid it.

49. She said that it was impossible that she would add any pages to the tenancy agreement after it had been signed, and that she had not done so.

50. Under cross-examination, Miss Tam said that she knew nothing about the cockloft. There was no discussion of it. There was no agreement that she knew of that the landlord was to use it exclusively. Before the tenancy agreement was signed, she did not know the business which the plaintiff intended to rent. So far as she could remember, she first heard of that when the plaintiff later came to see her on his own.

51. Miss Tam said that she had not made an attendance note in connection with the attendance of the parties to sign the tenancy agreement, because it was a normal tenancy matter. She could, however, remember the major points and she was quite sure that the plaintiff had never asked in her presence for an assurance that there were no illegal structures.

52. On the occasion when the plaintiff came alone to see her, she told him that clause 2(x) could cater for the situation where the government prohibited him from running his business, but she did not advise him that the landlord had breached the agreement. Nor did she advise him on 17 October that the landlord had breached the agreement or that the landlord should give back the deposit of $40,000.00.

53. The 1st defendant, who is 78 years old, says that she came to Hong Kong in 1950. She opened a business for handicrafts of rattan and bamboo furniture which was still in operation. She bought the shop in 1962, and a solicitor dealt with the conveyance for her. She used the shop on the ground floor as a processing factory, and the internal cockloft partly for an office and partly for storage. She had the external cockloft extension made after she had had the shop for about 15 years. She got a design and engineering company to do it and left all questions of whether or not it was a legal structure to them.

54. She said that after the shop had been advertised for letting, she heard from the 3rd defendant, who does not live with her, that a man wanted to rent the shop. The 3rd defendant said that he had opened the shop for the man to see it. He had told the man that the amount of rent was a matter for his mother to decide and arrangement had been made for her to meet him. On the following day, the 3rd defendant came in his car and took her to the Tai Woo Restaurant where she got a table and had some tea while the 3rd defendant went to the shop; she did not go there herself. After a while the 3rd defendant came back, followed by the plaintiff and some other people. They got a larger table and she went to sit at it. She and the plaintiff were introduced by the 3rd defendant, who then left the restaurant. In the plaintiff's party were two women, one of them rather old, a girl and a tall man. She could not say whether Ms Chang, whom she had seen giving evidence, was one of the two women. They discussed the amount of rent; the plaintiff offered $16,000.00 but she wanted $22,000.00. They did not agree. After the meeting she went down to the entrance, to wait for the 3rd defendant to come in his car and take her home.

55. She said that two or three days later she got a call from the plaintiff who agreed to pay $20,000.00 rent. He asked to see the shop again. She took a bus to Aberdeen and opened the shop for him. He was with another woman, but again she could not say who this woman was. They went into the backyard. The plaintiff pointed to the concrete platform or balcony under the rear windows of the cockloft and asked if that was an illegal structure. She told him that it was already there when she bought the shop and did not know whether or not it was illegally built. When he was asking about this, the woman was not in the yard.

56. The next time she met the plaintiff was when she went to the Miss Tam's office to sign the tenancy agreement. She said that she told Miss Tam that the rent was $20,000.00 per month, and the rates would be paid by the tenant. The tenancy was for three years, and there would be a rent-free period of two week for decoration. Nothing was said about illegal structures. The solicitor went through the agreement but the 1st defendant did not pay much attention to it. She went there alone but the 5th defendant later arrived and he was present when the solicitor was explaining the agreement. After the agreement had been signed and payment of the deposit made, the plaintiff mentioned that he was going to run a snack business in the shop, but before that the 1st defendant did not know what his business would be.

57. She had gone to the solicitors' office again on 17 October because, as she put it, the plaintiff was perhaps not sure about the contents of the agreement and wanted to get the solicitor to explain it to him. She went with her second son's wife, Bonny Leung, and Bonny's elder brother. Miss Tam explained the tenancy agreement but the 1st defendant did not pay attention to it, she did not know who arranged the meeting, and she did not know why the plaintiff wanted an explanation of the agreement. He produced the key and tried to give it back to her but she would not take it. Ultimately, because it was left on the table, she picked it up. Then they all went to have tea together and discussed it further. A receipt was given for the key at that point. Nothing in particular was discussed at tea, and there was no discussion of the rental deposit. The plaintiff wanted his money back, but the 1st defendant did not return it to him because he had to clean up the shop first and he never did so.

58. The 1st defendant said that the external cockloft extension was removed, but she did not know when. She did tell the plaintiff that she had had the extension built. However, she would not take down anything that she had built, because she did not know about such things. In cross-examination, she insisted that she had not been introduced to the other woman who came to the restaurant with the plaintiff's party. She did not know if it was Ms Chang who had given evidence; she had not paid attention to the lady's face. It seems also that she did not pay attention when Ms Chang was giving evidence. She said that the only thing that she had discussed with the plaintiff at the Tai Woo Restaurant was the actual rent to be paid. She also said that he should pay the rates. In any event, there was no agreement at that stage. She also insisted that she had never asked what the plaintiff's business would be.

59. The second meeting was not covered in the 1st defendant's first statement. She could not explain the reason for this.

60. With regard to the meeting at the solicitors' office, the 1st defendant said that she did not know whether the plaintiff had ever said that he would run a snack business. She was not paying attention. Again she could not explain why it appeared in her statement that this was said. However, she then said that after the agreement was signed, the plaintiff told her that he would run a snack business.

61. It was put to her that she had told the plaintiff at about the end of September that there were some illegal structures in the property. She agreed that by this time she knew that he was having problems with the licence but said that she had never told him that there were any illegal structures.

62. The 3rd defendant also gave evidence. He is 49 years old. He said that he knew that his mother had bought the shop in 1962 with the internal cockloft in place. He used to go there as a child. He was away for some time in the UK for education and returned in July or August 1977, after which he worked in another job for about three months before starting to work in his mother's company. It was a few months after that that the decoration was done which involved the building of the external cockloft extension. As to the tin roof over the backyard, he was not sure if that had been there when the premises were bought.

63. The 3rd defendant said that in early May 2000, he got a call from the plaintiff asking if the shop was to let. They made an appointment to visit the shop. There was some discussion of the rent, and as to whether the rates were included. He told the plaintiff that the rent would be about $25,000.00, but the final decision on the matter would be for his mother. There was no mention of illegal structures.

64. The next day, the 3rd defendant went to the shop where he found the plaintiff outside with two women, one of whom he thought was the plaintiff's wife and the other his mother, and one or two children. He opened the shop and the plaintiff went in. He himself went in for a couple of minutes and then stood outside because he had parked his car in the street and was afraid that he would get a parking ticket. He saw that the plaintiff went into the backyard, but he did not go into the backyard himself. He heard the plaintiff talking to the other people with him but he did not know what was said. He himself chatted outside the shop to the plaintiff's mother. After the plaintiff had finished the inspection, he asked what the external cockloft extension was. The 3rd defendant said that it was for the landlord's use. The plaintiff asked if they could reduce the rent and he said that it might be $23,000.00 but that was a matter for his mother's decision.

65. The 3rd defendant said that nothing was said on this occasion about any hole in the ceiling of the shop. In fact, it appears from cross-examination, according to him, that there was and is no hole there.

66. The 3rd defendant said that a further appointment was made to look at the shop one or two days later. He drove his mother to Tin Wan, parked his car and took his mother to the Tai Woo Restaurant where he left her while he went to the shop. There he found the plaintiff, two women and one or two of his children. One of the women appeared to be the plaintiff's wife, who had been with him before, and there was another young woman to whom he was not introduced. He was not sure if this was Ms Chang; she appeared younger and prettier than the woman he remembered.

67. He said that this time he went into the shop with the plaintiff, and also into the backyard. No inquiries were raised either about the tin roof over the yard or about any hole in the roof of the shop. There were no inquires about illegal structures. The inspection lasted about 15 minutes, and then everyone went to the Tai Woo Restaurant. There, the plaintiff's party got a table and he took his mother over to it. He sat down and introduced his mother and the plaintiff. He did not introduce the others. He had some tea, but then went off to collect his car so that he would not have to pay more than one hour's parking charges. He waited in the car for about 10 minutes until his mother came out of the restaurant and he drove her home. She simply told him that there was no agreement at that stage.

68. The 3rd defendant said his mother told him that she went to the shop another time to let the plaintiff see it. At this time she had told him that the plaintiff would rent the shop. He was not present when his mother and the 5th defendant and the plaintiff all signed the tenancy agreement. His next contact with the plaintiff was when the plaintiff telephoned him to ask about making an application for fire appliances. He used to go to collect the rent every month at the shop, about the 15th or 16th of the month. He thought that he was given the letter from the Buildings Department when he went to collect the rent on about 16 August. He said that the plaintiff simply asked him to have a look at it but did not make any demand or raise any complaints about it. It was about this time that he learned that the plaintiff was operating a food business. In any event, he said that he took away the letter, and phoned the officer concerned in the Buildings Department to tell him that some action would be taken about the external cockloft extension.

69. The 3rd defendant said that when he went to collect rent in mid-September, the plaintiff asked when the external cockloft extension would be demolished because it meant that he could not get the licence. He told the plaintiff that he would tell his younger brother to get it demolished, because he knew that sooner or later it would have to be demolished, but he did not know when it would be done. Some time after that, either his mother or the plaintiff told him that the plaintiff did not want to rent the shop any more. He went to the shop with the elder brother of his sister-in-law, some time in the middle of October. At this meeting, the plaintiff told him that he wanted to get back his deposit. He said that he could not arrange that, but it would be for his mother to deal with after the plaintiff had cleaned out the premises. The plaintiff did not make any other demands. It appeared to be that the plaintiff could not get his licence because of the outside cockloft but the plaintiff did not then make any demand for demolition of it. He suggested that the plaintiff do some other line of business. No agreement was reached, so they arranged to have a further meeting with the solicitor; but the 3rd defendant did not attend it.

70. Under cross-examination the 3rd defendant generally stuck to his story. It appeared that there were some discrepancies between his evidence and his statements though these were of no particular importance. However, overall, he showed a tendency to evasiveness; I had to intervene on various occasions, to keep him on the point.

71. The 5th defendant, Ng Yu Ming, Simon, is an engineer by profession. He said that the previous tenant had complained of water leakage through the ceiling from the external platform outside the cockloft windows at the rear of the shop; this had caused damage to the ceiling and had left a hole in the ceiling, about one foot square, at the back of the shop. The witness produced some photographs which he said were taken contemporaneously, showing this ceiling damage. He said that he had attended the solicitor's office with his mother and the plaintiff on 2 June 2000, to sign the tenancy agreement. The solicitor had indeed gone through it, page by page, and told them what was in it. There was discussion about a rent-free period, and about the break-lease clause, which the plaintiff wanted in case his business was not successful. However, the question of illegal structures was not raised.

72. The 5th defendant said that the 3rd defendant showed him the letter from the Buildings Department about the illegal structures, and told him to get the external cockloft extension demolished. He suggested that the plaintiff contact him about it. This the plaintiff did, and told him that he could not get his licence, because of the illegal structure. He told the plaintiff that there were two matters, namely the internal cockloft which was not let to him, and the cockloft extension. He suggested that the plaintiff give him the letters received from the government department, so that he could know if it would be of benefit to the plaintiff if the extension were demolished; but the plaintiff did not give any specific reply, and he did not produce the letters. He confirmed that he had later had the external cockloft extension demolished. He denied having asked the plaintiff not to reinstate the shop. He produced an estimate for reinstatement costs amounting to $29,000.00.

73. There is no doubt that there were illegal structures in the property; that is clear from the documents emanating from the FEHD and there is nothing to contradict them. Those structures were the "unauthorised cockloft overriding the whole premises" which I take to mean the internal cockloft and the cockloft extension, and the tin roof. Curiously enough, although the Buildings Department made an order dated 28 December 2001 against the defendants for removal of the external cockloft extension no such order was made in respect of the internal cockloft. It appears from the evidence of the defendants, and there is nothing to contradict them, that the 1st defendant bought the shop with the internal cockloft already built. It is not clear whether she ever knew that it was an illegal structure. The same applies, I think, to the tin roof. She had the external cockloft extension built herself, and it appears that she simply relied on the builder and did not consider whether or not it was legal. The cockloft extension could easily be removed, and in fact the defendants later removed it in compliance with the order. It appears from the photographs that the tin roof could also easily be demolished. Neither of these would necessarily have been fatal to the plaintiff's licence, for that reason. But the internal cockloft would require major works to remove it, and obviously unless someone spent a lot of money to do so, the plaintiff would never have been able to obtain a licence.

74. The major factual issue is whether the defendants represented to the plaintiff that there were no illegal structures, when that question was raised by him. The two sides give very different accounts of what happened between them at their various meetings. The plaintiff and the 3rd defendant agree that they had an initial telephone conversation, in which the plaintiff says that he asked about illegal structures and was told that there were none but the 3rd defendant denies it. Then, according to the plaintiff, on 28 May 2000 there was a meeting at the shop, which was continued at the Tai Woo Restaurant, and at which he was accompanied by his family members and Ms Chang. The 1st defendant was present at the shop as well as the restaurant, and the 3rd defendant took part in the discussions in the restaurant. However the 3rd defendant says that there was an initial meeting at the shop, on a day after the telephone conversation but before the day on which the parties went both to the shop and the restaurant. On that latter day, the 1st defendant did not go to the shop, but only the restaurant; and the 3rd defendant took little or no part in what went on at the restaurant. There was, according to the defendants, a further meeting between the plaintiff and the 1st defendant at the shop, on a day after the restaurant meeting, but before the agreement was signed, though the plaintiff denies such a meeting. The defendants seem to have a clear recollection of these two extra meetings. It is rather difficult to see why the plaintiff should have failed to mention the two extra meetings if they happened; and equally difficult to see why the defendants should have made up such meetings if they did not.

75. Obviously this is a case which depends very much on the credibility of the witnesses. As so often happens, the witnesses most closely involved on both sides did not give a very good impression. I refer in particular to the plaintiff himself, and the 1st and 3rd defendants. The plaintiff, although he seemed straightforward enough in his evidence-in-chief, was revealed in cross-examination as the kind of witness who would stick to his guns at all costs, whether to do so made sense or not. An instance of this was his insistence, in the teeth of other evidence, that he signed the tenancy agreement on 7 June, when he had signed a receipt for the key on 2 June, and the rent-free period of two weeks ran up to 16 June. There was also his insistence that the tenancy agreement he signed had fewer pages than that which he saw later; this is simply incredible. The 1st and 3rd defendants both showed a tendency to evasiveness, and the kind of wilful ignorance, or alleged lack of interest, e.g. in what business a tenant would undertake, which never inspires trust. But of course it is not simply a question of which side is less incredible; the plaintiff has to prove his case, and the defendants their counterclaim, on the balance of probabilities.

76. As to the first alleged representation, in the course of the telephone conversation, there is no evidence save that of the plaintiff and the 3rd defendant, and nothing to support either side. It is true that the plaintiff and Ms Chang give substantially the same account of what was said at the meeting at the shop and later at the Tai Woo Restaurant. There are some differences about the nature of the hole in the ceiling. That in itself would not be very important. But it seems clear from the evidence of the 5th defendant that there was not and never could have been a big hole, about six feet square, partly covered by planking, and going right through the floor slab into the internal cockloft and through which the plaintiff could poke a bamboo stick. I do not believe that there was a hole through the floor slab though there would have been a hole through the ceiling below it. Now while I can see that the presence of a large hole giving access to a cockloft above might give rise to an inquiry as to whether the cockloft had been built inside the shop, and by whom, and whether it was legally built, it is difficult to see that the same inquiry would arise if a solid floor slab, with no access, was found above; because in the normal way one would expect a floor to be part of the original building and therefore legally built. An extra floor is, of itself, unlikely to raise the kind of suspicion that the plaintiff says he had.

77. The greatest difficulty for the plaintiff's case lies in the evidence of the solicitor, Miss Tam. She is quite clear that, contrary to what the plaintiff says, and as the 1st and 5th defendants say, there was simply no mention of illegal structures, nor any representation made by the defendants in respect of them, when they came to her office to sign the tenancy agreement. Miss Tam seemed a perfectly straightforward and honest witness. It is argued that her recollection cannot be reliable, because the meeting took place three years ago, and she did not keep an attendance note. However, she remembers what was discussed, namely the rent-free period and the break lease clause and the fact that fresh drafts had to be made to include these. If illegal structures had been mentioned she could be expected to remember that, because for her, as for any other solicitor, alarm bells would ring; she was acting for both parties, and if the question of illegal structures had been raised, as a prudent solicitor she would have had to look into the matter, because if she did not, and a dispute ensued, there would be an obvious risk of some kind of claim being made against herself and her firm.

78. It is also to be noted that the plaintiff did not complain to Miss Tam, when he went to see her after receiving the letter from the Building Department, that although it now turned out that there were illegal structures, the defendants had told him that there were none. One would have expected him to do so especially if such a representation had been made in her presence.

79. It seems to me that Miss Tam is a truthful and accurate witness and I conclude that there was no mention of illegal structures, and no representation concerning illegal structures by the defendants at the meeting when the tenancy agreement was signed. The rest of the plaintiff's evidence has to be viewed in the light of this finding. His evidence of what was said in the solicitor's office was definite; it is not something about which he may be mistaken or confused. He simply cannot be telling the truth about this. This raises the question whether he is telling the truth about the other representations which he alleges and indeed whether he ever really thought about the question of illegal structures before he received the letter from the Buildings Department.

80. It is also to be noted that although the plaintiff instructed a company, Gold Chak, to apply for the licence on his behalf, he did not ask them to make any inquiries about illegal structures. He says that Miss Chan of that company asked him about illegal structures, and that he said that the landlords had told him that there were none, to which she said that there was no need to investigate further; but again it seems strange that an agent, charged with applying for a licence, who would presumably have some expertise in the field, would not at least have advised that it might not be safe to rely on anyone's word, and that proper investigations should be made before any action was taken.

81. Overall, having considered the evidence as a whole I conclude that, especially having regard to the evidence given by the solicitor Miss Tam, I cannot be satisfied on the balance of probabilities that the defendants or any of them made any of the oral representations which the plaintiff alleges. So his case on oral misrepresentation must fail, as must his case on collateral warranty which depends equally on the alleged oral representations.

82. He also avers misrepresentation by conduct, in the act of showing him the premises. He pleads that this amounted to a representation that the defendants had title to the whole of the property and could let it, and that it would not be diminished by the need to remove unauthorised structures. It is difficult to see how this could stand in any event. They were only letting the shop, and not the cockloft and the question of diminution by the need to remove unauthorised structures would never have arisen; what did arise was not diminution of the property let if that is what is intended by the pleading but that it was not, by reason of the illegal structures, suitable for the purpose for which it was let. That purpose was of course the operation of a snack business, and the defendants knew of that purpose at least by the time of the meeting when the plaintiff, and the 1st and 5th defendants signed the tenancy agreement.

83. Mr Cheung for the defendants relies on the case of Fortune Global Development Ltd v. Shung Cheong Food Trading Ltd [2002] 2 HKLRD 447 as authority for the proposition that the rule of caveat emptor applies as between landlord and tenant and failure to disclose defects in the title does not amount to misrepresentation. In that case the court relied on a passage in Halsbury's Laws of England, 4th Ed., Reissue, Vol. 27(1), at p.336 :

"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 warrant on the part of the landlord that it is in reasonably fit state for habitation, or that it may be lawfully used for the purpose for which it was let."

It is also to be noted that clause 2(x) of the tenancy agreement provides that the landlord does not warrant that the premises are suitable for any particular purpose. In the circumstances it is difficult to see that the defendants were under any duty to disclose the existence of illegal structures about which they were not asked, even if they knew that those structures were illegal. It seems therefore that the plaintiff's case on misrepresentation by conduct must also fail.

84. The plaintiff's claims must therefore be dismissed with costs (nisi) to the defendants, to be taxed if not agreed.

85. I turn to the defendants' counterclaim. They seek a declaration that the tenancy agreement had become null and void under clause 2(x) thereof; a declaration that they are entitled to retain the deposit; damages for reinstatement, amounting to $29,000.00; rent of $1,290.30 for the period from 16 to 17 October 2000; and interest at the contractual rate of 7% per annum above the prime lending rate.

86. Clause 2(x) provides :

"The Landlord does not warrant that the said premises are suitable for any particular purpose. Should the Tenant at any time within the term of this Agreement receive any notice from the proper Governmental Authority prohibiting the use of the said premises for the existing business of the Tenant, then subject to the Tenant's right to appeal against the relevant prohibition the Tenant shall thereupon immediately vacate the said premises and deliver vacant possession thereof to the Landlord and in such event this Agreement shall then become null and void and neither party shall have any claim whatsoever against the other under this Agreement but without prejudice to the Landlord's right of action against the Tenant for any of the Tenant's breach of the terms and covenants of this Agreement prior to such nullity."

On my findings the plaintiff was not entitled to repudiate the tenancy agreement. He was however prohibited from carrying on his business. So clause 2(x) would apply.

87. By clause 2(w) of the tenancy agreement the plaintiff was obliged to yield up the property in good, clean and tenantable repair and condition, to reinstate, remove or do away with any alterations, to make good any damage and to pay the defendant's costs of reinstatement. Clause 7 entitled the defendants as landlord to retain the deposit as security for the tenant's performance of his covenants and to deduct the cost of any loss or damage therefrom. In the normal way, the plaintiff should therefore pay the cost of reinstatement or the defendants should pay it, deduct the payment from the deposit and return the balance.

88. The defendants obtained a quotation for reinstatement of the premises, dated 9 June 2003 but it does not appear that they ever did reinstate them. The plaintiff says that he was asked to leave the premises as they were, so that the defendants could put someone else in to do the same business, and that he agreed to this. The 3rd defendant denies it. The 5th defendant also denies it, and says that the plaintiff was asked to remove his belongings, at the time when some of his equipment was sold, but the plaintiff said that he could not dismantle anything because the electricity supply was turned off, and asked that the defendants do the dismantling and charge him for it. Later, the plaintiff was told that the electricity supply had been connected, but he took no action. I accept the 5th defendant's evidence on this. I am not satisfied that there was any agreement that the plaintiff need not reinstate the premises. It would follow that the defendants are entitled to the cost of reinstatement.

89. The defendants claim interest at the contract rate. They may have this on outstanding rent, but not on reinstatement costs, which they have not actually paid.

90. There will be judgment for the defendants, on their counterclaim, for :

(1) a declaration that the tenancy agreement has become null and void under clause 2(x) thereof and the defendants are relieved of all liabilities for further performance or obligations thereunder;

(2) a declaration that they are entitled to retain the deposit in the sum of $40,000.00 and to apply the same for pro tanto set off of the sums which the plaintiff is hereunder held liable to pay, the balance thereafter to be returned to the plaintiff;

(3) damages for reinstatement in the sum of $29,000.00;

(4) payment of outstanding rent in the sum of $1,290.30 with interest at the contractual rate from 17 October 2000 to the date of judgment and thereafter at the judgment rate; and

(5) costs (nisi) to be taxed if not agreed.