KING ROYAL LTD v. LAM KWAN YUK

DCCJ4617/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4617 OF 2002

J U D G M E N T

1. The Plaintiff carried on the business of a commercial home care centre for the elderly.  It rented the premises at Sha Tau Kok Road in operation of the centre.  The lease of the premises was for a term of eight years commencing on 1 March 2000 until 29 February 2008 for the monthly rent of HK$20,000 from the date of commencement to 29 February 2004 and thereafter HK$25,000 until the expiration of the lease.

2. On or about 14 June 2001, the Plaintiff sold the business to the Defendant.  An agreement was signed, evidencing the terms of sale, including some terms concerning the tenancy of the premises.  Amongst other terms, it was stipulated under the agreement that (a) the Plaintiff shall transfer the original tenancy agreement to the Defendant.  The HK$40,000 deposit under the original tenancy agreement shall be given by the Defendant to the Plaintiff.  (b) On or after the date of transfer, all the elderly homes, operation, premises, business, rights and liabilities shall be taken up unilaterally by the Defendant.  All these shall have nothing to do with the Plaintiff.

3. The Plaintiff’s case is that the agreement constituted a subletting, but the Defendant says it is an assignment of the original lease.  The Plaintiff claims for vacant possession, arrear of rent, mesne profits and indemnity against the Defendant, and the Defendant counterclaims for a declaration that the lease had been assigned to the Defendant and the Plaintiff has no right to demand rent from the Defendant.

4.  The Plaintiff is absent today.  The representative of the Plaintiff had appeared before Master Tracy Chan on 11 April 2006 when the trial dates were confirmed before him.  I am satisfied that there has been sufficient notice given to the Plaintiff as to the trial dates and I decided to proceed in the absence of the Plaintiff.

5. Mr Cheung, counsel for the Defendant, referred me to Order 35, Rule 1(2) of the White Book and asked me to dismiss the Plaintiff’s claims and give judgment for the Defendant’s counterclaim.  The Defendant gives evidence and there is no evidence from the Plaintiff. 

6. The issue of this case turns on the interpretation of the sale agreement between the Plaintiff and the Defendant.  It is noteworthy that there is nowhere in the agreement mentioning any subletting of the premises.  Unlike the word “assigning,” “subletting” is a word ordinarily used in daily life if there is an intention to sublet.  On the other hand, the original tenancy agreement had been handed over to the Defendant and such arrangement is totally unnecessary for subletting.  In any event, I agree with Mr Cheung that as the alleged subletting is for the whole term of the original lease, there can be no subletting in law.  I find as a fact that the agreement constitutes an assignment of the original lease rather than a subletting. 

7. There are some arguments advanced by the Plaintiff in the Reply and Defence to counterclaim, including the allegations of res judicata, estoppel by tenancy and estoppel by convention.  I will just give some short answers to these agreements as I am of the view that they are actually non-points.

8. For res judicata, the answer is that Judge Lok did not actually rule on the issue as to whether it was a subletting.  It was an issue agreed by the head landlord as the Plaintiff and the Plaintiff as the Defendant of that action.  It does not bind the Defendant who did not participate in the action. 

9. For the two estoppel arguments, the simple answer is that the Defendant never regarded the relationship with the Plaintiff as a landlord-and-tenant relationship, and the payment to the Plaintiff was intended for payment of rent to the head landlord.

10. For the above reasons, I order that the Plaintiff’s whole claim be dismissed.  I make the declaration that by the agreement, the lease was assigned by the Plaintiff to the Defendant and the Plaintiff is not entitled to demand the Defendant paying rent to it.  In making this declaration, it is noted that there are letters from the head landlord to the Defendant, the contents of which show in effect that they accept the assignment should the court so rule.

11. Costs of this action and counterclaim, including all costs reserved, be to the Defendant with certificate of counsel, to be taxed if not agreed.