NIP WUN LAN v. CHAN OI LING

IN THE COURT OF APPEAL

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JUDGMENT

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Fuad, J.A.:

1. This is an appeal from the judgment of Deputy Judge Barnett, dated 2 April 1985, in a dispute over a tenancy agreement. He rejected the Plaintiff's claim for rescission of the agreement on the grounds of misrepresentation and awarded the Defendant arrears of rent and other amounts on her counterclaim. The Plaintiff now appeals to this Court.

2. The Plaintiff, Madam Nip Wun Lan, wanted to rent premises to use as a restaurant and saw something that seemed to suit her on the ground floor of No.20 Minden Avenue, Tsim Sha Tsui. She arranged with an estate agent to visit the premises and did so on 24 or 25 April 1983. On inspection, she found the premises were about 550 square feet in size and rectangular in shape. It seemed to be in good condition, but the estate agent could not tell her whether she could use the premises as a restaurant.

3. By arrangement, the Plaintiff met Madam Hon Kwai Yu, the Defendant's daughter and agent, there and Madam Hon told her that there would be no objection to her using the place as a restaurant. The Plaintiff decided to take a lease and an agreement was signed between the Defendant and Madam Nip accordingly. The tenancy was for a term of three years from 16 May 1983 at a monthly rental of $9,500. Madam Nip was also to pay $262.24 per month for the rates. There was a clause in the lease restricting user to business purposes.

4. During the next few months, Madam Nip decorated and fitted out the premises for use as a restaurant and opened for business on 12 July 1983. Three days later, her husband who was in business with her, formally applied to, the Urban Council for a general restaurant licence. They received a reply from the Council on the same day warning them not to carry out any structural work on the premises until they had been sent the Council's requirements, and not to start business before obtaining the appropriate licence.

5. On 16 August 1983, Madam Nip was informed by the Council that her application for a restaurant licence would be refused unless the following matters were "remedied":

6. Madam Nip contacted Madam Hon and told her of the problems that had arisen and that it would be necessary to engage a professional person to negotiate with the Building Authority over the "remedial" work. Madam Hon suggested that she should go ahead and employ someone as she herself was busy. Madam Nip and her husband engaged, as an "authorized person", an architect named Mr. Kotwall to act for them. The architect went into the matter and liaised with the Urban Services Department and the Building Development Department. It was not until 30 September that he was able to have sight of the original plans which were kept by the Government.

7. Included in the work done by the architect was the submission of plans to satisfy the fire regulations insisted upon by the Urban Services Department. The plans were approved by the Building Services Department. In evidence, the architect told the Court that as regards permission for change of user, this was not difficult to obtain and the terms of the occupation permit would not normally preclude the issue of a restaurant licence, once the Urban Services Department were satisfied with the alterations that they had stipulated. While it was difficult, he said, to remedy the Fire Services Department's objections, it was not impossible. It seems, from the answer given by Madam Nip to one of the interrogatories, that the architect had exhibited six sets of drawings to the Building Department on 17 November 1983 but that she herself had instructed the architect to notify the Department on 16 December that she did not want to pursue her application any further.

8. The blow fell on 8 December 1983 when Madam Nip was served with a closure order. Meanwhile, on two occasions, her husband has been prosecuted for running a restaurant without a licence. It seems that it was the second prosecution which led to the closure order.

9. Madam Nip issued her writ on 20 February 1984 and by her Statement of Claim, re-amended during the trial, she averred that during negotiations for the lease she had informed the Defendant's daughter and agent, Madam Hon, that she would use the premises as a restaurant and asked if they were "for business purposes". She had received an affirmative answer, Madam Hon adding that the previous tenant had used them for a garment business. Madam Nip also pleaded that Madam Hon, in response to another enquiry, had assured her the premises were in the same state (as regards shape and size) as originally constructed.

10. The re-amended Statement of Claim continued that Madam Nip had taken the tenancy in reliance upon these representations and entered into possession and spent money, time and labour in fitting the premises out as a restaurant in an attempt to obtain a restaurant licence. These representations were false since:

11. Madam Nip then pleads that these matters were discovered on 16 August when her application for a restaurant licence was refused. She claimed rescission of the lease and as special damages, itemized sums expended in decorating and fitting out the premises as a restaurant; the fees she had paid the architect to negotiate with the authorities after objections had been raised; legal fees for the tenancy; the estate agent's commission; and the rental deposit, rent and rates she had paid between 16 May and 15 September 1983, And she claimed damages in the alternative.

12. There was also an alternative claim in negligence which, though not expressly abandoned, was not pursued at the trial. About this, the learned deputy judge said:

 

" .... this claim so overlaps with the claim for damages for misrepresentation that if the latter fails the claim in negligence must necessarily fail also."

I will only say that the plea was not one of negligent misrepresentation and, in my view, as worded it was misconceived.

13. The deputy judge found on the evidence that the representation made by the Defendant's agent, Madam Hon, related only to the user of the premises that the Defendant was prepared to tolerate and not the user as shown in the occupation permit and authorized by the authorities. He accepted what Madam Nip had said in evidence concerning her enquiries about the original plans. On her own testimony, Madam Hon had pointed out that she did not know what the original plans would reveal for it was an old building and the plans were missing. She was not therefore able to give a definite answer as to the area and configuration of the premises as shown on those plans. And so the judge held that Madam Hon had not made an express representation as to the area of the premises.

14. There was also a plea in the re-amended Statement of Claim that the Defendant, through her agent, had represented by conduct chat the whole premises were lawfully erected, could be used for business or restaurant purposes and contained no unauthorized addition or extension; the conduct being the fact that Madam Hon had shown the premises to Madam Nip.

15. The judge held that this conduct could not have amounted to a misrepresentation as to user. But he considered that the act of showing the premises to a prospective tenant amounted to a warranty that the landlord had the title to, and could let the whole of the premises shown, and that the premises would not be diminished by the need to remove an unauthorized addition or extension. However, since Madam Hon had not been able to give a definite answer to Madam Nip's enquiries on the matter, this had qualified what had been represented by her simple conduct.

16. The Defendant had counterclaimed for arrears of rent and rates, mesne profits, damages for breach of contract and for a declaration that the Plaintiff's deposit be forfeited. Counsel for Madam Nip did not contest these claims if her claim were to fail. On the evidence, which was scanty on the question where possession was delivered to the Defendant, the judge did not think the claim for mesne profits had been made out. But he awarded the Defendant arrears of rent and rates and, as general damages, the difference between the rent provided for in the lease and the rent the Defendant was able to obtain for the relevant period. There is no appeal about any part of this award.

17. The first ground of appeal is that the judge erred in holding that Madam Horn's representation related only to the user of the premises which the Defendant was prepared to tolerate and not to the user shown in the occupation permit and authorized by the Government. However, Madam Nip agreed in cross-examination that before entering into the contractual arrangements with the Defendant she knew that she would need a licence to run a restaurant. She also agreed that she was asking Madam Hon if she would be allowed to use the premises as a restaurant "as some landlords do not like to use premises as apartment house or restaurant, I have to ask for her consent to see if I could use it as a restaurant." And that she knew that if that consent were given she still could not use the place as a restaurant without a licence from the appropriate authorities. Later, she said the words Madam Hon had used were "you can use the premises for business purpose, no objection if you use it as a restaurant."

18. The judge also held that if the representations had related also to the user shown in the occupation permit and authorized by the Government, the representation had not acted as an inducement to Madam Nip because since she had seen similar business flourishing in the neighbournood, she would have pressed on with her enterprise regardless of any knowledge of the user stated in the occupation permit.

19. The second ground of appeal is that this was never suggested to Madam Nip in cross-examination. There is nothing in this point.

20. The third ground of appeal states that the judge erred in holding that the failure of Madam Nip to make any further enquiry about the size of the premises rendered her claim on the representation unsuccessful. It was submitted to us that the burden on the Defendant of proving that Madam Nip had actual and complete knowledge of the truth, and was not therefore deceived by the misrepresentation, had not been satisfactorily discharged.

21. The fourth ground in the Notice of Appeal is that since the judge was prepared to hold that the get of showing the premises to a prospective tenant amounted to a warranty that the landlord had title to let the whole of the premises shown, he should have held that there had been a representation to Madam Nip at the time the premises were shown to he r that there was no unauthorized extension which might have to be removed in the future.

22. It was urged before us that the concern to find out how big the premises were, did not render the presence or absence of the Unauthorized extension immaterial.

23. Mr. Edward Chan, for the Appellant, placed great reliance on the decision of Mr. Brian Dillon, Q.C., as he then was, sitting as a deputy judge of the High Court in Laurence and another v. Lexcourt Holdings Ltd.⁽¹⁾ In that case, the facts summarized in the headnote were that in 1970, the Plaintiffs brought a property comprising two shops on the ground floor and living accommodation on the first and second floors. They sought permission from the planning authority to change its use so it could be used as offices. The authority gave them permission in 1971 to use the ground floor and part of the first floor as offices.

24. In February 1974, having forgotten that the planning permission did not cover the entire building, they offered to let the whole of the first and second floors to the Defendants for a term of 15 years. When the Defendants inspected the premises, they appeared to provide the office accommodation they wanted and they assumed that planning permission existed for its use as such and so they duly accepted the Plaintiffs' offer and without making the usual searches and enquiries (which would have revealed the truth) took over the premises at once.

25. They were informed two months later that investigations had shown, inter alia, that there was no planning permission for the rest of the first floor, and all of the second floor for use as offices. The parties then agreed that the Plaintiffs should apply for the necessary planning permission to allow the use of the first and second floors as offices. Permission was granted in October 1974, but the planning authority limited that permission to last only until the and of October 1977 so that trey could, inter alia, "review the need for offices at the site ....."

26. The solicitors for the parties thereupon entered into negotiations to see what alternative leasehold arrangements could be agreed. Negotiations failed and at the beginning of April 1975, the Defendants served one month's notice on the Plaintiffs; they paid rent up to the end of that month, and vacated the premises.

27. The Plaintiffs brought an action for specific performance. The Defendants pleaded by way of defence but they were absolved from carrying out the agreements because of (a) negligent misrepresentation, (b) common mistake and (e) illegality. They counterclaimed for the rescission of the agreement. In reply, the Plaintiffs averred that what-ever rights the Defendants might have had to rescind had been lost by reason of their affirmation of the contract by remaining in possession of the premise s after they had discovered the limits of the planning permission.

28. The deputy judge's decision is thus reflected in the headnote - and I omit paragraph (ii) for, it is conceded, that it is not relevant:

"Held - The plaintiffs' claim would be dismissed and the defendants were entitled to have the agreement rescinded -

(i) On the ground of misrepresentation, because the plaintiffs' description of the premises as offices was a representation not merely as to the physical state of the premises but also as to the availability of planning permission for them to be used for the full term of 15 years for the intended purpose as offices, and the plaintiffs were negligent in making that representation because they could have checked the facts but did not do so: Re Davis v. Cavey (1888) 40 Ch D 601 and Charles Hunt Ltd. v. Palmer [1931] 2 Ch 2 applied.

 

                (ii) .......

(iii) The defendants' claim was not barred by acquiesence: on learning of the limitation on the planning permission they were confused as to what they should do and wanted to consider any alternative leasehold arrangements that might be suggested in the negotiations between their solicitors and the plaintiffs' solicitors, they had not finally concluded at that stage that they would move out, and, when the negotiations broke down, they were entitled to time to consider what possibilities were then open to them. They did not decide until March 1975 that they would leave the premises and they then gave the plaintiffs reasonable notice."

 

29. As regards this authority, it is hardly necessary to state that each case where misrepresentation is alleged is different and governed by its own facts and that great caution is necessary before seeking to extract principles of general application from an individual case. The following seem to me to be matters which distinguish Lawrence and another v. Lexcourt Holdings Ltd.⁽¹⁾ from our ease:

Moreover, as is correctly stated, if I may say so, in Halsbury (4th Edition) Vol. 31 paragraph 1087:

 

"Where the representor issuing for specific performance of the contract, the jurisdiction being discretionary, less strong evidence will induce the Court to give effect to the representee's case, than if he were claiming rescission, or were defending himself against a claim to enforce the contract otherwise than specifically."

 

30. After listening to Mr. Chan's forceful and attractively presented arguments on behalf of the Appellant Madam Nip, I am not persuaded that the learned deputy judge erred in reaching the conclusions upon which he based his judgment. He saw and heard the witnesses and the construction he put upon their words and actions was clearly one that was open to him. I hold the view that Deputy Judge Barnett's decision should be upheld.

31. Apart from this, the evidence led by Madam Nip, after the discovery of all the material facts which she relied upon to give her the right to rescind showed that she elected to adhere to the bargain. She continued to occupy the premises and run a restaurant there and to employ Mr. Kotwall for nearly four months after 16 August 1983, the date of the letter from the Urban Services Department requiring "remedial" works; she continued to negotiate with the authorities through Mr. Kotwall and she paid rent for the period 16 August to i5 September. Even if any misrepresentation of the kind pleaded had been made out, her conduct gave the Defendant a complete defence to the proceedings for rescission. This was not conduct of a neutral nature, but conduct which showed unequivocally, an election to treat the lease as still in force. The affirmation was complete and binding. The deputy judge did not need, in view of his finding's, to go into these matters. But they were properly pleaded in the amended Defence and raised in the Respondent's Notice. I think that Madam Nip had ample "thinking" time before she committed herself to the contract. In the circumstances of this case, I think that her affirmation of the lease precludes her claim for damages for any mis-representation there might have been and I can find nothing in the Misrepresentation Ordinance (Cap. 284) that would assist her in the claim.

32. I would dismiss the appeal.

Cons, J.A.:

33. I agree with my Lord. Two areas of misrepresentation are put forward, one as to the use of the premises and the other as to their construction. As to the first, the words relied upon by the Plaintiff are most conveniently set out at page 11 of the judge's judgment. They were spoken by Madam Hon, the agent of the landlord:

"You can use the premises for business purposes. No objection if you use it as a restaurant."

 

The judge's decision follows on page 12:

"I am satisfied and so find that Madam Hon's representation related only to the user of the premises which she was prepared to tolerate and not to the user shown in the occupation permit and authorized by  the Government."

Taking Madam Hon's words in the context of the other evidence of the Plaintiff, through which we have been taken in full, I would not disagree with the conclusion of the judge.

34. It is not then necessary to consider the judge's secondary conclusion, which was that what Madam Hon had said did not materially induce the Plaintiff to take the tenancy. The judge thought that instead she had been persuaded by the general conditions of the area and its position in the Kowloon peninsula. He had, of course, the advantage of seeing the Plaintiff give her evidence and of being able to judge how much the circumstances would affect her. I think it unlikely that I would have interfered.

35. As to the construction of the premises, two particular misrepresentations are put forward. The first is that the premises were still in accord with the original layout plan submitted to the Building Authority. Madam Hon had said she supposed that they were. It may be that she was not being quite honest, for she admitted in evidence that she had known that the extension over the light-well had been put there by the previous tenant. On the other hand, I find it difficult to accept that what "she supposed" could amount to a representation. I would look for some thing more definite. Furthermore, there is no evidence that the Plaintiff relied upon that particular representation in any way to enter into the contract.

36. Secondly, it is said that the mere fact of a landlord's showing premises to a tenant is in itself an 'implied representation by conduct that the premises, in their physical configuration and construction, are lawful. I am not sure that I am willing to accept that proposition, although a landlord may be liable upon his covenant for quiet enjoyment for a reduction enforced subsequently by the authorities. Be that as it may, there is again no evidence that the Plaintiff relied in any way upon that conduct. Reliance is an essential ingredient to success in the action and in the absence of any evidence to that effect the Plaintiff's claim was, and this appeal is bound to fail.

37. We need not then consider whether the contract had or had not been affirmed, but in deference to counsel's argument, I think I should say that I would have come to the conclusion that the Plaintiff did affirm. Of course she was entitled to a reasonable time to make a decision after she became aware of the true state of affairs. But in my opinion the time when she did actually rescind, that is by the issue of her writ was well past that. There is some suggestion that she should have been allowed until the time that the Urban Council either accepted or finally rejected her architect's proposals. That, of course, could have been arranged by agreement with the Defendant, allowing the Plaintiff as it were to reserve until then her right to rescind. But there is no hint of any such agreement in the evidence. Indeed, it seems to me that the Plaintiff clearly took that risk upon herself, albeit expecting the Defendant to compensate her for any costs thereby  incurred.

38. It is for these reasons that I agree with my Lord that the appeal should be dismissed.

Kempster, J.A.:

39. In my opinion, a critical feature of the action giving rise to this appeal was that there was no direct evidence from the Plaintiff that she was induced to take a lease of the premises in question or to incur the expenses claimed by way of damages by any of the misrepresentations alleged. As against this, Mr. Chan, for the Plaintiff, submits through the medium of Chitty on Contracts and thereby of Smith v. Chadwick⁽²⁾:

 

"That if it is proved that the defendants with a view to induce the plaintiff to enter into a contract made a statement to the plaintiff of such a nature as would be likely to induce a person to enter into the contract, and it is proved that the plaintiff did enter into the contract, it is a fair inference of fact that he was induced to do so by the statement."

But Lord Blackburn did not stop there. To quote From him again:

 

"I quite agree that being a fair inference of fact it forms evidence proper to be left to a  jury as proof that he was so induced. But I do not think that it would be a proper direction to tell a jury that if convinced that there was such a material representation they ought to find that the plaintiff was induced by it, …. I think there are a great many other things which might make it a fair question for the jury whether the evidence on which they might draw the inference was of such weight that they would draw the inference. And whenever that is a matter of doubt I think the tribunal which has to decide the facts should remember that now, and for some years past, the plaintiff can be called as a witness on his own behalf, and that if he is not so called, or being so called does not swear that he was induced, it adds much weight to the doubts whether the inference was a true one."

40. It was quite open for Deputy Judge Barnett to find on the evidence before him that the Plaintiff' had not been induced in any of the ways relied upon in the re-amended Statement of Claim. No grounds have been shown which would entitle us to interfere with such findings. To the judgments given by my Lords, with which I respectfully agree, I would only add that in such negotiations as were described in Laurence and another v. Lexcourt Holdings Ltd.,⁽¹⁾ the respective rights of the parties were necessarily regarded as being held in suspense. I, too, would dismiss this appeal.

(1)    [1978] 2 All E.R. 810

(2)    [1884] A.C. 187 at p. 196