THE DOR FOOK CO LTD v. INASIA LTD

LDPE 1274/2003

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No.: LDPE No. 1274 of 2003

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JUDGMENT

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Background

1. The Applicant is the landlord and the Respondent the tenant of the suit premises known as Shop H & J, Ground Floor, Yu Yuet Lai Building, 43-55 Wyndham Street, Central, Hong Kong ("the Premises"). By a Tenancy Agreement dated 21 January 2000 made between the parties, the premises was let by the Applicant to the Respondent for a term of 3 years commencing from 1 January 2000 to 31 December 2000 for business purpose at the rent of $52,828 per month, exclusive of rates, payable in advance without deduction whatsoever on the 1st day of each and every calendar month. By an oral agreement made between the Applicant and the Respondent, the parties agreed that the rent in respect of the Premises be reduced to $47,000 per month, exclusive of rates, from 1 February 2002 and all other terms remained the same as in the above said Tenancy Agreement.

2. It was also agreed that there was negotiation between the parties before and after 31 December 2002 regarding the renewal of the tenancy of the Premises (i.e. Shop H and Shop J together) or the possibility of leasing only portion of the Premises (Shop H or Shop J) or the new leasing of other shop property (Shop B) in the same building owned by the Applicant. There was agreement between the parties that they had reached oral agreement in January 2003 that the rent for the Premises for the period from 1 January 2003 to 31 March 2003 be fixed at $38,500 per month. However, the oral agreement was not put in writing and there was disputes between the parties soon after 1 April 2003 in the following matters: (1) the details of the oral agreement (2) the nature of the tenancy of the Premises from 1 January 2003 to 31 March 2003; and (3) whether any agreement as to the tenancy of the Premises including the rent for the period from 1 April 2003 had been reached by the parties. Although the parties had previously signed 5 tenancy agreements each of a 3-year duration and had maintained landlord and tenant relationship for a long time, the parties unfortunately failed to settle the above disputes as a result of which the Applicant lodged her Application on 13 October 2003.

3. Pursuant to section 8(7) of the Lands Tribunal Ordinance, the Applicant applied for possession of the Premises on the ground that (1) the Respondent had failed and/or refused to pay the arrears of rent and rates due from the Respondent and (2) the Respondent had failed to quit and deliver up vacant possession of the Premises to the Applicant on 31 October 2003 notwithstanding that (a) the tenancy of the Respondent in respect of the Premises had been forfeited as a result of the breach of the tenancy agreement of the Premises for failing to pay the rents and rates due to the Applicant and /or (b) the tenancy of the Respondent in respect of the Premises had been terminated by the notice to quit dated 31 March 2003 served by Messrs Yu, Tsang & Loong, Solicitors for the Applicant. In the Applicant's application (Form 22 dated 13 October 2003), the Applicant claimed for (1) an Order for Possession, the sums of arrears of rent/mesne profits and rates for the period from 1 April 2003 to 30 October 2003 in the sum of $148,824.90, (2) the mesne profits at the rate of $47,000 per month and the Government rates at the rate of $2,475 per month, both from 1 November 2003 to the date of delivery of vacant possession by the Respondent, and (3) the costs of this action.

4. The Respondent filed the Notice of Opposition on 27 October 2003, setting out the following grounds:

"	(a)	Respondent expressly states that no agreement oral or written was at any time made with Applicant to pay HKD47,000 exclusive per month from the 1st January 2003;
	(b)	Oral agreement was made between Respondent and Applicant to pay HKD38,500 inclusive Rates per month for short period 01 Jan to 31 Mar 2003 with review end March 2003;
	(c)	Respondent's preceding written and certain Tenancy Agreement with Applicant expired absolutely midnight 31 Dec 2002 by effluxion of time with no further validity thereafter;
	(d)	Respondent's continued occupancy of subject Premises arose from Applicant's proposal to Respondent to enter into further Tenancy Agreement from 1st January 2003, proposal initiated 1st November 2002 and subject of on-going negotiations orally in four meetings, in writing in eight letters during December, January & March;
	(e)	Substance of negotiations was Respondent's demonstrated obligation, in depressed economy to confine Rental inclusive Rates to HKD28,500 monthly;
	(f)	Applicant therefore proposed in December smaller Premises 'B' in same building but unilaterally withdrew proposal in January and as short term expediency both Principals came to oral agreement (b) above;
	(g)	Applicant in March proposed dividing H and J into two smaller Premises inviting Respondent to select one or other and Respondent continued negotiations on that basis in good faith;
	(h)	Applicant unexpectedly unilaterally broke negotiations by serving Notice to Quit on 31st March 2003, final day of short term oral agreement thus converting three months term into ten months at Rental Inclusive Rates HKD38,500 determined by the oral agreement (b) and which obligation Respondent has accepted under duress;
	(i)	Other Particulars attached hereto."

5. The Applicant called for the evidence of (1) Ms. Leung, Shok Jing, the clerk of the Applicant handling the tenancy matters of the Premises as well as other properties owned by the Applicant and (2) Mr. Yu, Kai Chiu David, a director of the Applicant who was involved in the negotiation and the decision regarding the renewal of the tenancy of the Premises and /or new letting of other properties owned by the Applicant. Between these two witnesses, it is clear that the evidence of Mr. Yu is of more importance because it was he who could make decisions on behalf of the Applicant while Ms. Leung was working only under his instruction. Mr. Rankin - Moore, Kirn John for the Respondent gave evidence himself. Between the parties, they produced a number of documents including copies of correspondence exchanged prior to and after the date of expiry of the original tenancy on 31 December 2002.

Arrears of rent/mesne profits and arrears of rates

6. The parties did not have any factual disputes as the dates and amounts of actual payments of rents and rates by the Respondent. It was also agreed that after the service of notice of Application by the Applicant, the Respondent tendered on 16 October 2003 rents in the sum of $77,000, being 2 months' rents/mesne profits for the period from 1 September 2003 to 31 October 2003 in the amount of $38,500 per month. And up to the date of final submission on 13 January 2004, the Respondent had not made any further payment of rents/mesne profits for the period from 1 November 2003 onwards. Therefore, it was the Respondent's case that apart from the above, there was no other rent/mesne profits in arrears.

7. On the other hand, it was the Applicant's case that the parties had earlier agreed, albeit orally, that the rents of the Premises for the period from 1 January 2003 to 31 March 2003 be temporarily reduced to $38,500 per month, inclusive of rates. Thereafter, the rent was reverted to $47,000 per month, exclusive of rates. Therefore, it was the Applicant's case that apart from the arrears of mesne profits admitted by the Respondent, the Respondent also owned other arrears of rent/mesne profits for the period from 1 April 2003 to 31 October 2003, calculated as the difference between $47,000 and $38,500 per month. In addition, the Applicant also pleaded that the Respondent had not paid any Government rates for the period from 1 April 2003 onwards.

Notice of Termination served by the Applicant to the Respondent

8. It was undisputed that the Respondent had served the following notice of termination of the tenancy of the suit Premises onto the Applicant:-

"We are instructed by the Dor Fook Company Limited, your landlord to give you notice under Section 122 of the Landlord and Tenant (Consolidation) Ordinance Chapter 7, which we hereby do, to terminate your tenancy in respect of the above premises being business premises on the 31st day of October 2003 or at the expiration of the month of your tenancy which will expire next after the end of six (6) calendar months from the service upon you of this notice, whichever shall occur later, on which date you are required to quit and deliver up vacant possession of the said premises to our said client. (Dated 31 March 2003)"

The Applicant's case

9. It was Ms. Leung's evidence that following the expiry of the tenancy on 31 December 2002 there was no discussion on an extension of the term of the expired tenancy. There was other discussion between the parties as to the portion of the premises to be leased by the Applicant to the Respondent. However, according to Ms. Leung, the Respondent had changed their mind a number of times. As a result, up to 31 March 2003, the parties had not reached any oral or written agreement regarding the renewal of tenancy of the Premises. Ms. Leung recalled that the parties had only discussed and agreed on the rent of the Premises for the period from 1 January 2003 to 31 March 2003, to be reduced from the previous rent of $47,000, exclusive of rates, per month to $38,500 per month, inclusive of rates, and to be increased again to $47,000 exclusive of rates, from 1 April 2003. However, the parties had not expressly discussed or agreed on all other terms of the new tenancy of the Premises, other than the amounts of rents as stated above, either for the period from 1 January 2003 to 31 March 2003 or for the period from 1 April 2003.

10. Mr. Yu gave evidence that following the receipt of the usual offer letter from the Applicant in December 2002, Mr. Rankin-Moore and Ms. Cheung, his partner, came to his office in January 2003 seeking a reduction of rent. During the meeting, he agreed a reduction of rent for 3 months, from the previous rent of $47,000 per month (exclusive of rates) to $38,500 per month (inclusive of rates) and reverting backing to $47,000 per month (exclusive of rates) thereafter. Mr. Leung did not find it necessary to put the oral agreement in writing because he knew Mr. Rankin-Moore, an art dealer, for a long time and did not foresee that he would not honour the oral agreement so reached.

11. Mr. Yu recalled that there were much negotiation between the parties regarding the leasing of portion of the Premises or another shop unit owned by the Applicant but no final decision had ever been reached by the parties.

12. Mr. Yu, when questioned by the Respondent's representative, acknowledged that as at 28 March 2003 (the date of letter from the Respondent to the Applicant, page 85 of Exhibit A7), there was "no agreement between the parties for the period after 1st April." However, Mr. Leung insisted that notwithstanding the above, an oral agreement had in fact been reached between the parties in January 2003 as to the rent of the Premises after 1 April 2003.

13. The Applicant submitted that following the expiry of the previous tenancy on 31 December 2002, the Respondent stayed in the Premises, holding over as a periodic monthly tenant. Although the parties had verbally agreed in January 2003 that for the period from 1 January 2003 to 31 March 2003, the rent should be reduced to $38,500 per month, inclusive of rates, there was no verbal or written agreement as to the other terms of any tenancy for this period or for the period from 1 April 2003. As a result, contrarily to what the Respondent submitted, no fixed term tenancy of 3 months or of a longer-term duration by virtue of the service of the notice of termination by the Applicant to the Respondent had ever been created. The Applicant further submitted that the oral agreement reached in January 2003 also allowed the Applicant to revise from 1 April 2003, the rent of the periodic monthly tenancy to $47,000 per month, exclusive of rates, because the parties failed to reach any other agreement, verbal or otherwise, upon review of the whole subject matter at the end of March 2003.

The Respondent's case

14. Mr. Rankin-Moore gave evidence that the oral agreement reached by the parties in January 2003 meant that a tenancy for a fixed term of 3 months from 1 January 2003 to 31 March 2003 at a rent of $38,500 per month inclusive of rates had been created. Following the service of the notice of termination by the Applicant, this 3 months' tenancy was unilaterally extended by 7 months, expiring on 31 October 2003. Therefore, there was no basis for the Applicant as the landlord to demand from the Respondent the payment of rent in the sum of $47,000 per month, exclusive of rates, from 1 April 2003 and the payment of rates from 1 April 2003 as well.

15. He cited the various copies of correspondence between the parties, shown in Exhibit A7 produced by the Applicant, in support of his contention. Finally, he also filed a written submission on 13 January 2004 in which he sought the following:

(1)	That the rent for the period from 1 April 2003 to 31 October 2003 be $38,500 per month;
(2)	That the rent from 1 November 2003 be $47,000 per month;
(3)	"That the landlord kindly allow the tenant to remain in possession until end February 2004 while the smaller premises are sought";
(4)	"That in the spirit of the Chief Justice comments on 12th January 2004 concerning mediation as a more economical means of resolving dispute, the Landlord kindly re-consider negotiation to divide Premises H and J with mutually satisfactory division of relative costs;
(5)	"That each Party bear its own legal costs in the Hearings under this Application and Opposition."

The Law

16. The Applicant applies under section 8(7) of the Lands Tribunal Ordinance (Cap 17), which sets out the jurisdiction of this Tribunal in this proceedings:-

"

(7)

The Tribunal shall have jurisdiction to make orders for possession or for ejectment in relation to premises to which Part I, or tenancies or sub-tenancies to which Part II, Part IV or Part V of the Landlord and Tenant (Consolidation) Ordinance (Cap.7) applies where the contractual period of a tenancy or sub-tenancy has been terminated by forfeiture, by surrender (including surrender under the former section 52A, or under section 117, of the Ordinance), by notice of termination within the meaning of Part IV or Part V of that Ordinance or by notice to quit given by the landlord to the tenant, the tenant to the landlord, the principal tenant to the sub-tenant or the sub-tenant to the principal tenant."

Tribunal's findings

17. It is clear from the oral evidence of the witnesses and the documentary evidence produced by them that during the meeting of 21 January 2003 attended by the parties' representatives, "an interim arrangement had been agreed for the first quarter including, inter alia a review at end of March." (See letter dated 17 March 2003 from the Respondent to the Applicant, page 39 of Exhibit A7). It was common ground that there was agreement on the monthly rent of $38,500 inclusive of rates, for this period. And, in response to this letter of 17 March 2003, the Applicant replied on 20 March 2003, asking the Respondent to clarify a number of items before proceeding "to divide the H and J shops". Therefore, it is obvious from these letters that the parties were in the process of negotiating for a lease of either portion H or portion J during that time. Also, it would be very unlikely that when the parties reached an oral agreement in January 2003, the Respondent could have agreed to "revert" to the previous rent of $47,000 per month, exclusive of rates, for the period from 1 April 2003 in the event that they should fail to reach any other agreement before the end of March 2003 over the possibility of leasing either portion H or portion J or any other ground floor portion of the subject building owned by the Applicant.

18. Since the Applicant submitted that part of the oral agreement reached between the parties in January 2003 included a proviso that the rent be reverted to $47,000 per month, exclusive of rates, the onus of proof rested on the Applicant. On balance of probabilities, I find that the Applicant failed to discharge this onus of proof.

19. I also find that although the parties had orally agreed that for the period from 1 January 2003 to 31 March 2003, there was an interim arrangement that the rent should be $38,500 per month, inclusive of rates, it does not necessarily follow that there was any oral agreement between the parties that the term of the tenancy would be for a 3-month fixed term from 1 January 2003 to 31 March 2003, as submitted by the Respondent. Instead, I agree with the submission from the Applicant that in the absence of any express agreement, oral or otherwise, from the parties regarding the terms, including the duration and the type of the tenancy for this period of time, it should be regarded under the law as a periodic monthly tenancy.

20. As a result, I find that following the period of 1 January 2003 to 31 March 2003 (for which there was an oral agreement on the monthly rental amount), and in the absence of any further agreement between the parties, the Respondent continued to hold over under a periodic monthly tenancy at a rent of $38,500 per month, inclusive of rates, i.e., the monthly rent last payable under the periodic monthly tenancy created following the expiry of the former written tenancy (as varied orally) on 31 December 2002. I also disagree that the rent under the periodic monthly tenancy, from 1 April 2003, should be $47,000, exclusive of rates, the previous monthly rent passing.

21. Although the Respondent served a notice of termination on 31 March 2003 requiring the Applicant to deliver vacant possession of the Premises to the Applicant on 31 October 2003, I do not agree with the Respondent that the said notice would have the effect of extending the tenancy of the Premises to a 10-month fixed term tenancy. The nature of the tenancy for the period from 1 January 2003 to 31 March 2003 would be decided by the terms agreed by the parties in January 2003. It would not be affected and changed later on by the service of the notice of termination by the Respondent. Since I have decided that for the period from 1 January 2003 to 31 March 2003, it was a monthly periodic tenancy, the subsequent issue of the notice of termination by the Respondent on 31 March 2003 would not have the effect of changing the nature of the tenancy of the premises, from a periodic tenancy to a fixed term tenancy.

Conclusion

22. In light of the above findings, the Tribunal decides that the Respondent shall deliver vacant possession of the Premises to the Applicant and that the Respondent shall pay the Applicant arrears of mesne profits. Other than that, there is no jurisdiction for the Tribunal to grant other orders or reliefs, including those orders sought by the Respondent in his final written submission.

23. As to the costs of the proceedings, since the Respondent owed the Applicant arrears of mesne profits at the time of filing of the Applicant's Application, and the Respondent failed to give up possession notwithstanding the service of the notice of termination which expired on 31 October 2003, an order nisi for costs, to be made absolute in 21 days, that the Respondent shall bear the Respondent's costs will be made.

Orders

1.	The Respondent shall deliver vacant possession of the suit Premises to the Applicant;
2.	The Respondent shall pay the Applicant arrears of mesne profits for the period from 1 November 2003 up to the date of delivery up of vacant possession of the Premises at the rate of $38,500 per month;
3.	An order nisi for costs (to be made absolutely in 21 days) that the Respondent shall pay the Applicant costs of this Application, at District Court scale, on party and party basis, to be taxed if not agreed.
4.	Payment out to the Applicant upon payment in by the Respondent, if any.