CITY MAKER LTD v. JETCOOL GROUP (WONG'S) LTD

HCA 2214/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2214 OF 2016

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D E C I S I O N

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The tenancy agreements

1. By a written tenancy agreement dated 19 January 2012 (“the first tenancy agreement”), Jetcool became a tenant of City Maker’s premises at the ground floor of Man Shung Industrial Building for a three-year term from 1 February 2012 to 31 January 2015.  The rent for the first tenancy agreement was $142,000 per month.  The agreement was comprised in a written tenancy agreement.

2. Prior to the expiry of the term, the parties entered into a second written tenancy agreement dated 31 January 2015 (“the second tenancy agreement”) for a two-year term from 1 February 2015 to 31 January 2017.  The rent for the second tenancy agreement was $200,000 per month.  Again the agreement was comprised in a written tenancy agreement.

Termination of the tenancy

3. At sometime between March and May 2016, Jetcool informed City Maker that it intended to terminate the tenancy.  There is a dispute on the evidence as to when notice was given.  Jetcool says that formal notice was given on or about 30 March 2016.  City Maker’s evidence is that Jetcool orally informed City Maker in April or May 2016 of its intention.  The differences are irrelevant for present purposes, because on 27 June 2016, Jetcool sought early termination in writing.

4. On 29 June 2016, Jetcool left the premises and attempted to deliver to City Maker the keys to the premises.  This was done first by Jetcool attempting to hand the keys over on 8 July 2016, receipt of which was refused by City Maker. Then on 12 July 2016, the keys were posted by Jetcool to City Maker by registered post.  Again, City Maker refused to accept the keys.

5. On 26 August 2016, City Maker issued a specifically endorsed writ claiming outstanding arrears of rent and rates etc, amounting to some $1,048,440.  City Maker succeeded in obtaining summary judgment under Order 14 from the master.  Jetcool appeals the master’s decision.

The defence to the claim

6. Jetcool says that during the negotiations leading up to the first tenancy agreement City Maker and Jetcool agreed that the tenancy should be a term of five years with the first term being a fixed term, and the remaining two years being an optional term with a standard break clause of one month’s notice.

7. Jetcool says that it was further agreed between the parties that while the rental for the fixed term would be $142,000 per month, the rental for the remaining optional two years would be negotiated later and evidenced by another tenancy agreement. 

8. No provision in respect of an optional second term of two years, with break clause was included in the first tenancy agreement.

9. Ms Tsang, a director of Jetcool, says as follows:

“ 5. However, when the agreed terms were put into writing, I suddenly discovered from the tenancy agreement prepared by [City Maker] that only the fixed term for the 1^st three years was mentioned and the optional term for the remaining two years was missing. I then enquired from Ms Ng of [City Maker] and was orally assured by her that the parties should first enter into a tenancy agreement for a fixed term of 3 years and upon the expiration of the fixed term, [City Maker] would enter into another tenancy agreement with [Jetcool] for another optional term of 2 years. I admit that only the rental for the fixed term was agreed at that moment but the rental for the optional term should be negotiated later. It was under such misrepresentation on the part of [City Maker] that [Jetcool] was induced into signing the 1^st tenancy agreement with [Jetcool] (‘City Maker’ misrepresentation’)……

6. In or around January, 2015 before the expiration of the fixed term under the 1^st Tenancy Agreement, I represented [Jetcool] to negotiate directly with Ms Ng of [City Maker] regarding the renewal of the tenancy of the premises on the phone. Based on [City Maker’s] agreement to honour its previous promise to let [Jetcool] have an optional term of 2 years, I agreed that the monthly rental of the premises could be revised from $142,000 to $200,000, representing more than 40% increase in the amount of the monthly rental. At that moment, Hong Kong was still recovering from the crisis of the ‘Occupy Central Movement’ and the economic prospect was very uncertain. It was based on [City Maker’s] misrepresentation and the understanding that the renewed tenancy could be terminated by [Jetcool] by giving one month’s advance notice that [Jetcool] was willing to renew the tenancy with [City Maker] at an increased rent.

7. After the parties orally agreed that the renewed tenancy was for an optional term of 2 years from 1^st February, 2015 to 31^st January, 2017, [City Maker] subsequently posted a new tenancy agreement to me for my signature for [Jetcool] and return. At the time when the new tenancy agreement was signed by me, I simply trusted [City Maker] and did not realise that it was in fact for a fixed term of two years from 1^st February, 2015 to 31^st January, 2017, and the clause that [Jetcool[1]] was entitled to terminate the term of tenancy by serving one month’s notice to such effect was then missing. After the new tenancy agreement was signed by me, I simply arranged to post back the same to [City Maker] for their signature and arrangement of stamping. At that moment, I did not make a copy of the new tenancy agreement. Nor did [City Maker] return one duplicate of the new tenancy agreement to [Jetcool] for custody after it was signed and stamped. It was only until 9^th August 2016 that I finally received a copy of the new tenancy agreement from [City Maker] through their solicitors ….

8. Based on the understanding that [Jetcool] was entitled to terminate the tenancy under the new tenancy agreement and due to poor economic condition and business downturn, on or around 30th March 2016, I formally informed Ms Ng of [City Maker] about [Jetcool’s] intention to terminate the tenancy on or before 31st May 2016 by way of a written notice. There is now shown and produced before me the exhibit marked ‘TCT-2’ a true copy of the said notice dated 30^th March 2016.  However, at that moment, Ms Ng insisted that [Jetcool] must complete the tenancy until 31^st January 2017 and no early termination of tenancy would be allowed.  On or around 1^st or 2^nd June 2016, I orally informed M  Ng again about the early termination of tenancy until the end of June 2016.  Thereafter, by a Chinese letter dated 27^th June 2016, I served a written notice on [City Maker] requesting to terminate the new tenancy agreement.  [The affidavit then deals with the attempt to return keys.]……”

10. Ms Tsang did not, but should have, referred to the fact that on 15 January 2015, Jetcool was sent a copy of the proposed tenancy agreement for the second tenancy by way of a WhatsApp message from City Maker.   The copy was accompanied by a statement: “please receive the City Maker Limited’s tenancy agreement” the message was received at 3:30 pm to which the response, at 5:07 pm was “OK, thanks!”

The termination of the tenancy

11. Ms Tsang produced a letter dated 30 March 2016, which is in simple terms, “officially” notifying City Maker that the tenancy is to be terminated and that Jetcool will move from Man Shung Industrial Building on or before 31 May 2016.

12. City Maker denies having received that letter.

13. The second termination letter dated 27 June 2016, (see §8 of Ms Tsang’s affirmation), whereby Ms Tsang gave written notice to City Maker of its intention to terminate the tenancy is significant. 

14. In the letter, Ms Tsang begs for an early release of the tenancy, asking for an indulgence.  She explains because of the financial conditions in Hong Kong which have caused cash flow problems Jetcool is unable to pay the rent. The final paragraph reads as follows:

“ We pray your company or the landlord to unconditionally dissolve the tenancy agreement with us before it expires. We are longing to maintain good relations with your company. We do not want to be in arrears with the rent for a long period of time. We eagerly hope that your company could understand what difficulties we are now facing and would be willing to dissolve the tenancy agreement without imposing any condition. We wish that you could approve it.”

15. On the basis of this evidence, the case for Jetcool is argued upon, first an oral agreement, and second, misrepresentation.  It is argued that the letter of 30 March 2016, evidences Jetcool’s understanding that there was a break clause.

Discussion

16. I accept Mr Lee’s submission that an Order 14 application is not intended to be a mini trial of the action on affidavits.  It is sufficient for the court to ask itself the simple question: “The issue is not whether the defendant’s assertions are to be believed, it is whether those assertions are believable”, see Godfrey JA in Ng Shou Chun v Hung Chun San [1994] 1 HKC 155.  It is perfectly proper for the court to examine the evidence in determining whether or not the assertions constituting a defence are believable.

17. Jetcool’s letter of 27 June 2016, is entirely inconsistent with the case now put forward, both as to the existence of the letter dated 30 March 2016, and as to the suggestion that there was either misrepresentation, or an oral agreement.

18. First, if, as Ms Tsang asserts, on 30 March 2016, written notice of Jetcool’s intention to vacate the premises on 31 May 2016, was given, I have no doubt that that letter would have been referred to in the letter of 27 June 2016.  But there is no suggestion in the letter of 27 June 2016, that Jetcool had already given notice that they intended to vacate the premises on 31 May 2016.  Instead, after the date on which it is alleged written notice was given on which Jetcool would vacate, there is merely a general plea for an early release from the tenancy.  I have no doubt that if written notice to vacate was given on 30 March 2016, the letter of 27 June 2016 would have referred to that notice. 

19. The whole terms of the letter of 27 June 2016, are quite inconsistent with the existence of the 30 March 2016 letter. 

20. Further, there is no suggestion at all in the letter of 30 March 2016, that there was a term of the agreement, either oral as is now suggested, or in writing as Ms Tsang must have then believed, she was not being in possession, she says, of a copy of the second tenancy agreement at that time.  If, as is now asserted by Jetcool there was an agreement for early termination reference to that agreement would have been made in the letter of 27 June 2016.

21. The assertion by Jetcool that written notice was given on 30 March 2016 is simply incredible.

22. Second, the existence of a term allowing early termination, is entirely inconsistent with the letter that was written on 27 June 2016.  I have no doubt at all that if Ms Tsang believed, as she now says, that there was in fact a term of the second tenancy agreement making provision for early termination on one month’s notice, her letter would have said so.  Nothing was said about the early termination right.  Instead, a plea for an indulgence based upon economic conditions of the time was made.

23. In those circumstances, the assertion that there was an oral agreement for early termination is simply not credible.

24. Ms Tsang attempts to explain her lack of knowledge of the break clause by saying, (see §7 of her affirmation), that she simply trusted City Maker and she did not realise the term was missing.  The assertion is unbelievable.  Jetcool had a copy of the tenancy agreement by way of the WhatsApp message.  There was plainly no break clause contained.  She signed the second tenancy agreement, having had the opportunity to read it and raise the absence of the clause.  She did not do so.

25. It was a vital clause.  If there had been such an agreement I have no doubt that she would have raised the point.

26. The conversation alleged by Ms Tsang, which at face value might amount to a defence of misrepresentation, must be viewed in the context.  If, as is now argued, there had been a misrepresentation as to the terms of the tenancy agreements, that would have undoubtedly been raised by Jetcool when the first tenancy agreement was received.  It is a term that is of significant importance and I have no doubt at all that the recipient of such an agreement, omitting that important term, would not have raised it then.

27. Moreover, if such a representation had been made, Ms Tsang would have raised that when returning the signed second tenancy agreement.  It is simply unbelievable that she would not have raised the omission of such an important term.  Furthermore she would not have written the letter of 27 June 2016, in terms of a plea for indulgence.  That letter would, if there were in reality such an agreement, have simply referred to the agreement, and given the appropriate notice.

28. When viewed in context there is simply no credibility whatsoever to Ms Tsang’s assertions.

29. Mr Lee placed heavy reliance upon the decision in Bank of China (Hong Kong) Ltd v Fung Chin Kan & Anor (2002) 5 HKCFAR 515, in which the Court of Final Appeal demonstrates the difference between a representation and a misrepresentation and sets out the proper legal approach to a collateral agreement.

30. There is a significant factual distinction between the two cases.  It is clear from Bank of China that the fact of oral representation was corroborated and established as a fact.  In the present case the whole of the evidence points to there having been no oral representation as contended for by Jetcool.  Consequently, Bank of China does not assist Jetcool.

Disposal

31. In those circumstances it is clear that there is simply no defence available to this claim.  There is no reason at all to depart from the written agreement between the parties which was that the second term of the lease, plainly agreed to, was return of two years with no break clause. 

32. The master was right to enter judgment.  The appeal is refused and the judgment will stand.  Jetcool must pay City Maker’s costs both here and below, to be taxed on a party and party basis.