MAULDEN INVESTMENT LTD v. MHYH LTD

LDPE 998/2018

[2019] HKLdT 50

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO LDPE 998 OF 2018

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J U D G M E N T

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1.  This is an application for recovery of possession of the suit premises at Shop No B01 on Basement and Shop No G01A on Ground Floor of Provident Square of Provident Centre (the “Premises”), and orders for mesne profits, damages and costs. The applicant as the landlord submits that the tenancy between the parties had been early terminated by the applicant on 30 September 2018 but the respondent refused to vacate from the Premises after lease termination.

2.  The respondent as the tenant contends that the applicant had made representations and/or promises to the respondent that the applicant would not exercise its right of early termination under the tenancy.  The parties also argue over whether the respondent’s reliance upon the aforesaid representations and/or promises if any is precluded by a clause in the tenancy, and the amount of Government rates and rent, management fees and air-conditioning charges.

The Applicant’s Case

3.  The applicant filed the application to the tribunal on 25 October 2018, and subsequently amended the application on 5 December 2018 pursuant to an Oder of the tribunal made on 21 November 2018.

4.  The applicant submits that there was a tenancy between the parties for a fixed term of 3 years from 1 June 2017 to 31 May 2020 at monthly rent of $183,800 exclusive of Government rent and rates, management fees, air-conditioning charges and other outgoings, together with an option to renew for a further term of 3 years (“Tenancy Agreement”). In accordance with clauses 2.02 and 2.03 of the Tenancy Agreement, the landlord or its authorized agent(s) reserves the right to revise the amount of management fees and air-conditioning charges payable by the tenant from time to time during the term and the landlord’s or its authorized agent’s assessment of the appropriate increase shall be conclusive.

5.  The Tenancy Agreement has a “Sale of the Premises or Redevelopment of the Mall” clause, clause 12, that in case if there shall be a transfer of 50% or above of the shareholdings of the landlord or the landlord shall resolve to sell the Premises or resolve to redevelop the Premises, the landlord has a right to early terminate the Tenancy Agreement by serving a 6-month notice of termination on the tenant.  The applicant affirms that (i) 100% of the shareholdings of the landlord was transferred on 28 February 2018; (ii) the landlord passed a resolution that landlord intended to redevelop certain part or parts of the Provident Square by renovation and/or refurbishment; and (iii) the landlord exercised its right to terminate the Tenancy Agreement on 30 September 2018 by serving a notice of termination on the tenant by way of a letter dated 29 March 2018.

6.  The applicant contends that the respondent fails to prove that there was a representation, and in any event there was no promise that the applicant would not exercise its right of early termination in the future. Further, clause 13.15 of the Tenancy Agreement which is both an entire agreement clause and a non-reliance clause in any event precludes the respondent from relying on any claim on collateral warranty and misrepresentation. Extracts of clause 13.15 are listed below: -

“This Agreement including the Schedules hereto constitutes the entire agreement between the parties hereto with respect to the tenancy of the Premises and contains all the agreements, representations, warranties and conditions between the parties in connection therewith and supersedes all previous agreements, warranties, representations, understanding, negotiations and discussions, whether written or oral, of the parties in relation thereto (including without limitation any letter of offer and letter of acceptance, if any, which may have been issued and executed prior to this Agreement by the parties hereto, their employees or agents)…..”

7.  Since the respondent refused to vacate from the Premises after lease termination, the applicant also claims against the respondent the damages which would include but is not limited to the delay in commencing renovation works at the Premises and the cost of evening renovation works for common areas in connection with the Premises.  Nevertheless, since the damages if any are largely yet to occur at the date of trial, the tribunal made direction on 16 July 2019 that where appropriate the tribunal will decide on liability first, and if the applicant succeeds on liability, there will be a separate trial on quantum of the damages.

8.  In addition to mesne profits, the applicant also makes claims for Government rent and rates, management fees and air-conditioning charges from 1 October 2018 including their subsequent adjustments and/or revisions.

The Respondent’s Case

9.  The respondent filed a Notice of Opposition on 2 November 2018, which was subsequently amended on 5 March 2019 pursuant to an Order of the tribunal made on 27 February 2019.

10.  Mr Ng, counsel for the respondent, submits that the respondent entered into the Tenancy Agreement in reliance on the representations and/or promises made by the applicant that the applicant would not exercise its right of early termination.  Further and alternatively, the said representations and/or promises made by the applicant were made fraudulently and/or recklessly in order to induce the respondent to enter into the Tenancy Agreement, and therefore, it would be inequitable or unconscionable for the applicant to act inconsistently with the said representations and/or promises and the applicant was estopped from insisting its right to exercise early termination under clause 12 of the Tenancy Agreement.  In addition, Mr Ng submits that clause 13.15 does not preclude a claim in misrepresentation.

11.  Mr Ng invites the tribunal not to make a ruling on liability of damages because causation, foreseeability, remoteness and the applicant’s duty to mitigate loss, which are matters interrelated between liability and quantum, are not explored at the present trial hearing.  Further, the tribunal should not allow the adjusted and/or revised Government rates and rent, management fees and air-conditioning charges if any because (i) the applicant has not pleaded for the alleged adjustments and/or revisions; (ii) the alleged figures were not disclosed in the notice of application and/or the applicant’s witness statement; (iii) as a result, the respondent did not have the opportunity to arrange witness and/or produce evidence in reply; and (iv) there is no witness from the applicant to give evidence in support of such claims and for the respondent to cross-examine.

The Issues

12.  The agreed issues in the present case are: -

(1)  Whether the respondent is in breach of clause 12 of the Tenancy Agreement?

(2)  Whether any representations / promises had been made to the respondent by the applicant / those acting on its behalf to the effect that the applicant would not exercise its right of early termination under the Tenancy Agreement?

(3)  If there were such representations / promises, whether the respondent was induced by and acting in reliance upon such representations / promises in entering into the Tenancy Agreement?

(4)  If there were such representations / promises, whether it would be inequitable or unconscionable for the applicant to act inconsistently with such representations / promises?

(5)  Whether the respondent’s reliance upon the alleged representations is precluded by clause 13.15 of the Tenancy Agreement?

13.  Further, the tribunal is required to decide whether (i) liability of the damages if any, and (ii) the adjusted and/or revised charges and/or fees as claimed by the applicant, should be determined by the tribunal.

Whether the respondent is in breach of the Tenancy Agreement?

14.  There is no dispute on the interpretation of clause 12 of the Tenancy Agreement.  Ms Wong, counsel for the applicant, submits that the two triggering events (i.e. transfer of 50% or above shares of the landlord and/or resolution to redevelop the Premises) have been activated and the pre-condition of 6-month written notice in advance for termination is also satisfied, and hence the respondent which is still in possession of the Premises is in breach of clause 12 of the Tenancy Agreement.

15.  Mr Ng has not argued over the validity of the said two triggering events and the effectiveness of the said 6-month written notice.  He submits that the applicant is estopped from insisting its right to exercise early termination under clause 12 of the Tenancy Agreement because the respondent had entered into the Tenancy Agreement in reliance on the representations and/or promises made by the applicant that the applicant would not exercise its right of early termination.

16.  On the face of the record, the respondent is in breach of clause 12 of the Tenancy Agreement. I consider that the respondent is not in breach only if the representations / promises, reliance and estoppel as contended by the respondent can be established and clause 12 is no longer effective, which are discussed in the paragraphs below. 

Whether any representations / promises had been made by the applicant?

17.  The respondent relies on two representations and/or promises made by the applicant.  Mr Ng submits that one was made by a leasing representative during inspection of the Premises on 16 March 2017, and another was made by one Miss Ho during the negotiation of the Tenancy Agreement.

18.  Miss Tsang, the chief executive officer of the respondent’s holding company, testified that when she firstly inspected the Premises on 16 March 2017 before leasing of the Premises, a leasing representative acting for and on behalf of the applicant had made the express representations and/or promises in response to her enquiry that (i) the mall of which the Premises forms part would not be redeveloped; and (ii) the applicant would not exercise its right of early termination in relation to the lease of the Premises. Miss Tsang also testified that in view of the substantial costs involved in setting up the beauty business, she distinctly remembers that in the course of inspection, after checking that the leasing representative had a senior position with the applicant, she particularly made the said enquiry with the leasing representative.

19.  Miss Woo, the then personal assistant of Miss Tsang, testified that Miss Ho, representative of the applicant, (i) told her that the part in clause 12 of the Tenancy Agreement in relation the right of the applicant having the right upon giving six months’ notice to terminate the Tenancy Agreement if there should be a transfer of 50% or above of the shareholdings of the applicant is just a standard clause and the applicant had never used this clause to terminate any tenancy agreement; and (ii) reassured her by saying Miss Ho did not receive any information of any renovation and/or redevelopment plan involving the mall and/or the Premises or information suggesting that there would be transfer of the shareholdings of the applicant.  Regarding the inspection on 16 March 2017, Miss Woo testified that as her boss Miss Tsang was going to inspect the Premises, she had specifically asked an estate agent, Nexus Realty Limited, to call the applicant to arrange a staff who had the authority of making representation to accompany the inspection.

20.  Although the evidence of the respondent is that the name card of the leasing representative as mentioned by Miss Tsang was lost and both Miss Tsang and Miss Woo now cannot remember the name of the said leasing representative, Mr Ng submits that the creditability of Miss Tsang and Miss Woo should not be adversely affected for this reason.  The respondent has provided sufficient information for the applicant to make the necessary enquiries as to the existence of the said leasing representative and the applicant could well have easily checked its record to discover whether there was any leasing representative arranged to inspect the Premises with the respondent on 16 March 2017 and if so the identity of the said leasing representative, but there is no such evidence from the applicant to rebut the evidence of Miss Tsang and Miss Woo in relation to what happened on 16 March 2017.

21.  Mr Ng accepts that the burden is on the respondent to prove that the said representations and/or promises were made by the applicant, but the respondent has not identified the said leasing representative.  The respondent has not even called any witness from the estate agent, Nexus Realty Limited, to prove what had happened on 16 March 2017. Without identifying the said leasing representative, I agree with Ms Wong that this is only a bare allegation by the respondent which deprives the applicant of any opportunity to call the said leasing representative, if he or she existed, to give evidence.  Accordingly, this bare allegation of representations and/or promises made by an unidentified leasing representative should be given no weight.

22.  Regarding the alleged representations and/or promises made by Miss Ho, Mr Ng invites the tribunal to adopt a holistic approach to examine the whole and the accumulative effects of what Miss Ho said in the whole context of the case.  Mr Ng queries why Miss Ho did not provide a direct and simple answer that the applicant might in the future exercise the right of early termination. With due respect, I disagree and am of the view that Mr Ng’s inference is unacceptable.  I agree with Ms Wong that the assertions made by Miss Ho relate to the facts up to then conversation only and there were no representations and/or promises that clause 12 would not be exercised in the future. 

23.  I consider that the respondent fails to prove the said representations and/or promises.  It is odd that the respondent lost the identity of the said leasing representative, such an important person holding a senior position from the respondent’s perspective, and now relies on the memory of Miss Tsang and Miss Woo only as evidence at trial. Even if the respondent would invest heavily at the Premises, it is also odd for Miss Tsang to make enquiries in her 1^st inspection to the Premises about whether the mall of which the Premises forms part would be redeveloped and whether the applicant would exercise its right of early termination, when the draft Tenancy Agreement was yet to be sent to the respondent.

Whether the respondent was induced by and acting in reliance upon the said representations / promises?

24.  Mr Ng contends that the respondent was induced by and acting in reliance upon the said representations and/or promises in entering into the Tenancy Agreement.  But for the said representations and/or promises to the effect that the applicant would not exercise its right of early termination, the respondent would not have signed the Tenancy Agreement. I disagree

25.  Miss Tsang confirmed in cross-examination that she did not discuss any terms of the tenancy during the 16 March 2017 inspection. Miss Tsang and Miss Woo confirmed that the terms of the tenancy were to be negotiated between Miss Woo and Miss Ho subsequent to the 16 March 2017 inspection, and they were aware of the existence of clause 12 of the Tenancy Agreement.  Miss Tsang also confirmed that if during the course of negotiations there was an issue or a problem with the terms of the tenancy, the respondent could decide not to enter into the Tenancy Agreement. In the circumstances, I consider that any representation which was made on 16 March 2017 appears to be immaterial.  I agree with Ms Wong that the respondent had relied on the subsequent negotiation of the tenancy terms between Miss Woo and Miss Ho when entering into the Tenancy Agreement, and not the alleged representations and/or promises on 16 March 2017 if any. The respondent had accepted the commercial risk of early termination when it decided to enter into the Tenancy Agreement with an explicit clause of early termination.

26.  On the other hand, even if the respondent did rely on the representations of Miss Ho, the representations were statements of fact of past events only. The respondent could of course rely on statements of fact of past events and then made its commercial decision, but there was no assurance that the applicant would not exercise its right of early termination under the tenancy.

Whether it would be inequitable or unconscionable for the applicant to act inconsistently with such representations / promises?

27.  Since there is no finding of representations and/or promises that the applicant would not exercise its right of early termination under the tenancy and the reliance of the respondent in this connection, I consider that the applicant could not have acted inconsistently and no issue of unconscionable or inequitable conduct arises. 

28.  Although the respondent may incur loss upon early lease termination, there is nothing unconscionable or inequitable which is actionable at law. 

Whether the respondent’s reliance upon the alleged representations is precluded by the Tenancy Agreement?

29.  Ms Wong submits that clause 13.15 is both an entire agreement clause and a non-reliance clause. An entire agreement clause would preclude a claim on collateral warranty (Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep 611; [2000] All ER (D) 1100), and a non-reliance clause would preclude a claim on misrepresentation by reason of contractual estoppel (Yang Dandan v Hong Kong Resort Co Ltd [2015] 6 HKC 126 and First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2019] 1 WLR 637).  In any event, there were no representations / promises and misrepresentation as alleged by the respondent.

30.  Mr Ng submits that clause 13.15 is an entire agreement clause only.  It is similar to the exclusion clause in Glory Gold Ltd v Star Play Development Ltd [2008] 2 HKLRD 416, which does not preclude a claim in misrepresentation.  In the more recent judgment in Tin Wan Tung v Wong See Yin & Others HCA 167/2011, 25 May 2018, it was also held that the exclusion clause does not exclude liability for misrepresentations. In response to Ms Wong’s submission, Mr Ng replies that clause 13.15 does not has clear wording of “reliance” as in the exclusion clause in First Tower Trustees, and in any event the exclusion clause in First Tower Trustees was held by the judge as unreasonable. The case Yang Dandan should also be differentiated because its exclusion clause and circumstances are different.

31.  In addition to the representations / promises that have been discussed in the paragraphs above, Mr Ng submits that there should have fraudulent misrepresentation made by the applicant.  The applicant as the legal and beneficial owner of the shopping mall must have first-hand knowledge / information as to any prospective sale of the shopping mall. In the sale of the subject shopping mall with consideration of HK$2 billion and sale and purchase agreement signed on 19 December 2017, the due diligence had to be taken before 9 June 2017 when the Tenancy Agreement was signed, which is common knowledge in business and is supported by the evidence of Miss Tsang.

32.  Mr Ng invites the tribunal to take the whole circumstances into account to ascertain the state of mind of the applicant at the time when the Tenancy Agreement was signed, particularly in the circumstance that “a transfer of 50% or above of the shareholdings” is a new clause which did not appear in other tenancy agreements previously signed by the respondent and the then owner of the applicant. He submits that it is reasonable to infer that the applicant should have knowledge that the shopping mall would be sold / redeveloped, but the applicant made fraudulent misrepresentations that the right of early lease termination would not be exercised and then the applicant did not know there would be transfer of the shareholdings of the applicant.

33.  After considering the cases quoted by the parties, I have doubt whether a non-reliance clause can preclude misrepresentation absolutely.   In Tin Wan Tung, Wilson Chan J said “109 …… the doctrine of “contractual estoppel” does not assist …… in the present case, for the reason that contractual statement that would otherwise raise contractual estoppel will not do so if the content or effect of that statement has been misrepresented to the party sought to be estopped ……”

34.  However, there is no finding of misrepresentation as submitted by the applicant.  First, there is no direct evidence of the said misrepresentation. Second, the inference submitted by Mr Ng is merely a guess only without concrete evidence.  I consider that the respondent fails to prove that the applicant had made misrepresentation.  There is possibility that transaction of large scale property may sometimes conclude quickly with relative short due diligence period.

Whether the tribunal should determine liability of the damages?

35.  I am of the view that if the applicant succeeds in the application, subject to proof of damages and mitigation by the applicant, the applicant must be entitled to claim loss. Given that the applicant has pleaded for damages in its amended Notice of Application, the tribunal should deal with this claim in the application.  Under section 8(8) of the Lands Tribunal Ordinance, Cap 117, the tribunal shall have jurisdiction, in any application for possession or for ejectment, to make an order for the payment of damages in respect of any breach of a condition of the tenancy or sub-tenancy.

36.  No doubt, causation, foreseeability and remoteness of the damages if any and the applicant’s duty to mitigate loss where necessary should be further argued between the parties.  Hence, if the applicant succeeds in the application, there should have a separate trial on quantum of the damages if need be. However, all these should not preclude the tribunal to firstly determine the liability at this trial.

Whether the Tribunal should determine the adjusted and/or revised charges and/or fees?

37.  I agree with Mr Ng that the tribunal should not determine the adjusted and/or revised charges and/or fees at this juncture. I also note that the apportionment of Government rates and rent may be in dispute. The details of all these have not been disclosed in the amended Notice of Application and the applicant’s witness statement, and were subsequently provided by the applicant in the hearing bundle only. The list of issues submitted by the parties have not covered this specific issue too.

38.  Since the respondent did not have the opportunity to arrange witness and/or produce evidence in reply, and cross-examine the applicant’s witness in this connection, I consider that the amount of Government rates and rent and the said adjustments and/or revisions where necessary should be further argued between the parties at a separate trial if need be.

Conclusion

39.  Since the Tenancy Agreement had been early terminated by the applicant on 30 September 2018 and the respondent is in breach of the Tenancy Agreement, the applicant succeeds in the application.

40.  Given that the parties may be in dispute over the amount of Government rates and rent, and the adjusted management fees and air-conditioning charges, all these together with quantum of the damages if any should be heard at a separate trial if need be.  In the interim, I make order for payment of mesne profits, and tentative management fees and tentative air-conditioning charges only, which should be the fees and charges before adjustments.

Costs

41.  The parties agree costs to follow the event.  Since the applicant succeeds in the application, the respondent should pay costs of the applicant.

Orders

42.  By reasons of the above, I come to the following decisions: -

(1)  The respondent do deliver vacant possession of the suit premises to the applicant;

(2)  The respondent do pay the applicant mesne profits at the rate of $183,800 per month from 1 October 2018 until delivery up of vacant possession;

(3)  The respondent do pay the applicant the tentative management fees at the rate of $71,544 per month and the tentative air-conditioning charges at the rate of $39,932 per month from 1 October 2018 until delivery up of vacant possession;

(4)  The respondent’s previous payments of rent / mesne profits, management fees and air-conditioning charges be allowed to set off against the mesne profits, tentative management fees and tentative air-conditioning charges as ordered;

(5)  The matters of revised management fees, revised air-conditioning charges, Government rates and rent, and quantum of the damages (if any) shall be adjourned to a date to be fixed by parties if need be, with liberty to apply for any other ancillary and consequential matters;

(6)  Costs order nisi that the respondent do pay costs of these proceedings including any reserved costs to the applicant, to be taxed if not agreed on District Court scale and with certificate for counsel; and

(7)  If there is no application to vary the costs order nisi within 14 days hereof, it shall become absolute.