DCCJ 1400/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 1400 OF 2010

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BETWEEN

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JUDGMENT

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1.  This is a landlord and tenant dispute between the Plaintiff as the landlord and the Defendant as the tenant.

2.  On the day of the trial hearing, the Defendant which has chosen to act in person since early October 2010, did not turn up to give evidence to defend its case or prove its Counterclaim.  The Plaintiff then proceeded to prove its case pursuant to Order 35 r.1(2) of the Rules of the District Court.

Tenancy Agreement

3.  By a Tenancy Agreement dated 31 October 2007, the Plaintiff let to the Defendant the premises situated at Ground Floor, No.1, Irving Street, Hong Kong (“the Premises”) for a term of six years commencing 1 November 2007 to 31 October 2013 at a monthly rental of $78,000 (inclusive of management charges but exclusive of rates) plus Net Turnover Fee (as defined in the Second Schedule). The rental is payable in advance on the first day of each and every calendar month.

4.  I find the following provisions of the Tenancy Agreement, among others,  relevant to the present proceedings:

(a)   Clause 2.11 which says that the Premises should only be used as a restaurant;

(b)   Clause 3.2 provides that the Plaintiff handover the Premises in its “as is” condition;

(c)   Clause 4.1 provides that interest shall accrue at the 8% p.a. on the outstanding rental from the date of payment until full      payment to the landlord;

(d)   Clause 4.2 expressly provides that the landlord gives no warranty to the tenant that the Premises are lawful and suitable       for the use or purpose specified in Clause 2.11 and that the   landlord has made no representation to the tenant as to the    permitted use of the Premises, and that the tenant agrees to, at     its own expense, apply for any requisite licence(s) and/or permit(s) from all government or public authorities  for the       purpose of carrying on its business;

(e)   Clause 4.16 provides that both the landlord and the tenant shall have the right to early terminate the term of six years in writing   if the Net Turnover in any calendar year is less than     HK$7,800,000.

The Plaintiff’s case

5.  In its Statement of Claim, the Plaintiff is claiming for breach of the Tenancy Agreement by the Defendant and claims for arrears of rent from 1 July 2008 to 28 February 2009, a period of 8 months and a total outstanding rental of $624,000.00.  

6.  Pursuant to Clause 4.1 of the Tenancy Agreement, the Plaintiff is entitled to charge interest at the rate of 8% p.a. on the outstanding rental and the outstanding interest payment as pleaded in the Statement of Claim up to 10 February 2009 is $16,038.28. 

7.  The Defendant delivered vacant possession of the Premises on 6 March 2009 and total outstanding rental should therefore be $639,096.77.  At the hearing, the Plaintiff presented an updated interest calculation of $104,077.75 as of 1 November 2010.

The Defendant’s case

8.  In the Defence, the Defendant has pleaded fraudulent and/or negligent misrepresentations which induced it into entering the Tenancy Agreement.  Among the few alleged oral misrepresentations, the most significant one was the Plaintiff’s representation that it would assign or transfer its restaurant licence to the Defendant so that the latter could continue to enjoy the existing conditions of the Plaintiff’s licence without going through the trouble of obtaining its own licence or to incur extra expenses on such an application.  The Defendant alleged that it only discovered in or around January 2008 through its own licensing consultant that it would need to obtain a licence and would also need to spend about $700,000 to install a bathroom for the disabled to satisfy the requirement for the said licence. 

9.  The Defendant has also pleaded that upon discovery of such facts, the Plaintiff through Benjamin Ong agreed and orally accepted the rescission of the Tenancy Agreement. 

10.  The Defendant counterclaims for return of the rental deposit in the sum of $234,000, rent and management charges for May and June 2008 in the sum of $319,895.27 and other miscellaneous charges amounting to $361,692.50.

Evidence

11.  There are 3 witnesses from the Plaintiff, Mr. Barry Polson, Miss Rosita Tsang Yin Mei and Mr. Benjamin Ong. In their witness statements, they have given a detailed account of what happened from the negotiation stage of the Tenancy Agreement to how the Defendant defaulted in making payment. 

12.  Negotiations for the Tenancy Agreement commenced around January 2007 but it was at the end of October 2007 that parties executed the Tenancy Agreement. 

13.  Mr. Barry Polson is a director of the Jia Boutique Hotels Limited which holds the Plaintiff.  He has said that during the negotiation stage, he accompanied the Defendant’s representatives to visit the Premises which had been used as a restaurant but closed down in late 2006.  He told the Defendant that they could adopt the existing fixtures and furniture if they found them suitable.  Mr. Polson told the Defendant that there was still a licence of the previous restaurant but it would expiry at end of September 2007.  He has reminded the Defendant to apply for its own licence to operate as the Defendant would want to carry out alterations to the existing layout.  He even recommended a licensing agent to the Defendant. Mr. Polson has denied making any representations as to the assignment or transfer of the licence.

14.  Miss Tsang is an Executive Assistant of another holding company of the Plaintiff and she has assisted in the making of the present Tenancy Agreement.   She began attending to the queries of the Defendant around March 2007.  She said that the previous restaurant had a general restaurant licence and any transfer would need the written consent of the Director of the Food and Environment Hygiene Department subject to stringent restrictions in restaurant layout and alterations.  She considered this too cumbersome on the Plaintiff and told the Defendant that they would need to apply for a fresh licence accordance to their own needs.   She said that by

a telephone conversation between herself and Mr. David Sun of theDefendant around 24 July 2007 she clarified once again with him that there could not be any transfer or assignment of the Plaintiff’s licence and that the Defendant had to apply for its own licence.

15.  Ms. Tsang also said that the Defendant knew that they had to install a bathroom for the disabled before the execution of the Tenancy Agreement and she had not heard or received any complaints from the Defendant.

16.  Mr. Benjamin Ong is a Director of Finance and Acquisition of the Jia Boutique Hotels Limited.  He has confirmed what Mr. Polson said during the negotiations and the site visits.  He similarly has denied making any representations as to the assignment or transfer of the licence.  He noticed that the Defendant had not begun any construction in April 2008, let alone operation.  When he made enquires, he was told that the US economy was turning bad and the Defendant had to wait for funds from US headquarters. The Defendant only paid for rental of March to June in around June 2008.  Mr. Ong was worried about the payment of the Net Turnover Profits.

17.  Mr. Ong has denied any oral agreement between the Plaintiff and the Defendant for the rescission of the Tenancy Agreement and the return of the rental deposit and the rent already paid.

18.  The Defendant has filed a witness statement of Mr. Robert Schuster, however, he has not shown up to give evidence. 

FINDINGS

19.  As the Defendant has chosen not to defend its case, the Plaintiff’s evidence is unchallenged.

20.  The Plaintiff has given the Defendant a 3-month rent-free period and the Defendant’s obligation to pay rent only commenced on 1 February 2008, but it has been habitually late for payment until default since July 2008.

21.  I find that the Defendant knew all along during the negotiation stage and latest in July 2007, much earlier before the execution of the Tenancy Agreement on 31 October 2007 that it had to apply for its own restaurant licence and that the Plaintiff would not be assigning or transferring its previous licence upon its expiry on 28 September 2007. The Defendant therefore engaged the services of its own licensing agent.

22.  I also find that the Defendant knew before entering the Tenancy Agreement that it had to install a bathroom for the disabled in order to satisfy the requirement for the licence.

23.  I find that the Plaintiff’s case is consistent to the provisions in the Tenancy Agreement. Clause 4.2 of the Tenancy Agreement is totally contrary to the Defendant’s allegation of representations made by the Plaintiff for the assignment or transfer of the Plaintiff’s licence for the enjoyment by the Defendant.

24.  Clause 4.16 of the Tenancy Agreement provides for early termination only when the Net Turnover Profits are unsatisfactory. I accept that there is no good reason for the Plaintiff to agree on early termination or rescission of the Tenancy Agreement with return of all rent received from February to July 2008 as alleged by the Defendant.

25.  I am satisfied that the Plaintiff has proved its case and I hereby give judgment to the Plaintiff. The Counterclaim is dismissed.

26.  I order that the Defendant pay the Plaintiff the sum of $743,174.52 ($639,096.77 as the arrears of rent plus interest of $104,077.75) up to date of judgment. I allow post-judgment interest to run at the contractual rate of 8% p.a. which coincides with the present judgment rate. The Defendant should also pay the costs of the present proceedings to be taxed if not agreed, with certificate for counsel.