SHUN HO ENERGY DEVELOPMENT CO LTD v. GOLDEN CROWN INDUSTRIES LTD

CACV 161/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 161 OF 2014

(ON APPEAL FROM LDPE NOS. 1060, 1061 AND 1062 OF 2013)

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LDPE 1060/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 1060 OF 2013

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LDPE 1061/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 1061 OF 2013

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LDPE 1062/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 1062 OF 2013

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REASONS FOR JUDGMENT

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Hon Kwan JA (giving the reasons for judgment of the court):

1.  This is an appeal of the tenant against the judgment of Member Lawrence Pang of the Lands Tribunal on 14 March 2014 given after a two-day trial in February 2014. The Tribunal gave judgment in favour of the landlords and ordered the tenant to deliver up vacant possession of three shop premises known as Shops C, D and E (collectively “the Premises”) in Kim Wo Building, Nos 162 to 172 Ngau Tau Kok Road, Kowloon and to pay mesne profits in the amounts specified until the delivery up of vacant possession. The appeal was brought with leave granted by the Court of Appeal (Yeung VP and Yuen JA) on 28 July 2014 with stay of execution pending appeal on condition that the tenant pays the landlords mesne profits at the rates as ordered by the Tribunal.

2.  The main issues in this appeal are whether there was a binding agreement between the landlords and the tenant for a new tenancy on the expiry of the term of the old tenancy on 12 August 2013; alternatively, whether the landlords are estopped from contending that no new tenancy agreements were made on the basis of the debit notes they sent to the tenant on 22 August 2013 requesting it to pay the “new rentals” which the tenant duly paid on 5 September 2013.

3.  After hearing submissions, we dismissed the tenant’s appeal and these are the reasons for our judgment.

Background

4.  The relevant background matters may first be stated as follows.

5.  The landlords all belong to Winland Group Limited, a property investment company in Hong Kong.  One of the landlords, Winland Enterprises Limited (“Winland Enterprises”), acted as the leasing agent of the landlords and one of its leasing managers, Ms Fok Fung Yin (“Ms Fok”), gave evidence for the landlords at the trial.

6.  The Premises were first let by the landlords to the tenant by three tenancy agreements all commencing on 13 August 2007 for a term of three years with an option to renew for a further three years.  At all times the Premises were combined as one large unit and used by the tenant to operate an amusement game centre.  In August 2010, the tenant duly exercised the option under each of the agreements and a new set of tenancy agreements were made with similar terms as before except for the option to renew (“the 2010 tenancy agreements”).  Each of the 2010 tenancy agreements provided that the tenancy was to expire on 12 August 2013.

7.  Clause 27 in Part 1 of each of the 2010 tenancy agreements contained a provision that the tenant must on the day of expiry of the tenancy or the day of termination of the tenancy deliver up vacant possession of the premises to the landlords before 5 pm that day, failing which the tenant would be required to pay market rent (not less than the rental in the 2010 tenancy agreements) for each day of delay[1].

8.  About one month before the expiry of the tenancies under the 2010 tenancy agreements, on behalf of the landlords Winland Enterprises issued a Notice of Expiry of Tenancy (“NET”) to the tenant in respect of each of the Premises.  The three NETs were dated 9, 11 and 12 July 2012.  The NET is in Chinese and in a standard form with blanks to be filled in for the particulars as appropriate.

9.  Clause 1 of the NET set out seven terms of the landlords in the event that the tenant should wish to renew the tenancy.  They included the amount of the new rent, the duration of the new tenancy, and the top up amount to be paid as the new deposit.  Clause 1(6) provided that the tenant must attend the office of the leasing agent Winland Enterprises to sign a formal tenancy agreement.  Clause 1(7) provided for the payment by the tenant of an administration fee to Winland Enterprises and half of the stamp duty of the new tenancy agreement.

10.  Clause 2 set out the steps that should be taken by the tenant to deliver up vacant possession if the tenant should choose not to renew the tenancy.

11.  At the bottom of the NET were two reply slips to be completed by the tenant, depending on whether the tenant should wish to renew the tenancy agreement or deliver up possession on the expiry of the existing tenancy.  The reply slip to complete if the tenant should wish to renew provided that the tenant agreed to renew the tenancy “on the above terms”, but the expiry date of the new tenancy and the amount of the rent were left blank for the tenant to complete[2].

12.  Clause 3 of NET provided that if the reply slip was not returned to the landlord by the date as specified, the tenant would be deemed to have given up the renewal of the tenancy and he must deliver up vacant possession in accordance with the steps in clause 2.  The respective deadlines for the reply slip to be returned for the Premises were 20, 22 and 23 July 2013.

13.  Clause 5 is similar to clause 27 in Part 1 of the 2010 tenancy agreements.  It provided that if the tenant should fail to deliver up possession to the landlord or the leasing agent on the day of termination of the tenancy, the landlord is entitled to require the tenant to pay market rent which would be not less than the rent stipulated above in clause 1[3].

14.  There were disputes whether the terms in clause 1 of the NET amounted to an offer of the landlords or merely an invitation to treat; if it was an offer, whether time was of the essence in returning the reply slip; and whether there was no binding agreement for a new tenancy and everything had remained in negotiation until a formal tenancy agreement was signed by both parties.

15.  The tenant’s attendant manager Lee Ying Wai Lawrence (“Mr Lee”) gave evidence the NETs were received by the tenant only on or about 22 July 2013.  The Tribunal made no finding on this.  There was no dispute however that in late July, after the deadlines for returning the reply slips had gone, Mr Lee telephoned Ms Fok several times to discuss the renewal of the tenancies.  Mr Lee requested the landlords to renew at these lower rentals instead of those stipulated in the NETs: $30,000 for Shop C instead of $33,000, $30,000 for Shop D instead of $33,000, and $35,000 for Shop E instead of $39,000.  It was also not in dispute that Ms Fok later informed Mr Lee that the request to reduce the rentals was refused.  In a subsequent telephone call, Mr Lee informed Ms Fok that the rentals stipulated in the NETs were acceptable to the tenant, to which Ms Fok replied “OK”.

16.  It is the tenant’s case that a binding agreement for a new tenancy of the Premises was made there and then.  Relying on this agreement, the tenant signed and completed the reply slip for each of the Premises to renew the tenancy and returned the same to the landlords.  The tenant did not put a date on each of the reply slips.

17.  The tenant alleged that the reply slips were returned to the landlords on 14 August 2013.  Ms Fok claimed that the reply slips were received only after the landlords had issued letters to the tenant dated 24 August 2013 demanding delivery of vacant possession by 26 September 2013.  The Tribunal made no finding on this.

18.  Meanwhile, on 22 August 2013, the landlords issued debit notes to the tenant for, inter alia, “rental” (租金) of the Premises for September 2013 and outstanding “rental” for 13 to 31 August 2013 (the old tenancies having expired on 12 August), at the new rate as stipulated in the NETs (新租金).  The tenant paid the “new rentals” for September 2013 as well as the “new rentals” for the latter half of August by cheques on 5 September, which were cashed by the landlords on 9 September.

19.  A couple of days after the debit notes were issued, the tenant received the letters from the landlords dated 24 August 2013 demanding delivery of vacant possession by 26 September 2013.  On 12 September, the landlords again wrote to the tenant requesting delivery up of vacant possession by 26 September, failing which the tenant would be required to pay “mesne profits” (佔用費) at the rate of $2,000 per day.

20.  The tenant replied to the letters of 24 August 2013 and 12 September 2013 by the letter of its solicitors dated 24 September, alleging an agreement was made for the renewal of the tenancy.  Further or alternatively, it was asserted that the landlords are estopped from denying the existence of the renewed tenancy by acceptance of the new rent.

21.  On 30 September 2013, the landlords issued amended official receipts and debit notes changing “rental” for the period after 12 August 2013 to “mesne profits”.  On 9 October 2013, the landlords sent the amended debit notes and receipts to the tenant with covering letters to clarify that the payments demanded for the period after the expiry of the old tenancies on 12 August were mesne profits.  On 25 October 2013, the landlords commenced the present proceedings for recovery of vacant possession and mesne profits.

The judgment of the Tribunal

22.  The Tribunal held that the terms in clause 1 of the NETs constituted an invitation to treat and not an offer for acceptance[4]. If the Tribunal were wrong about this, the Tribunal held that the attempts by the tenant to negotiate for lower rentals amounted to counter-offers rejecting the offers, and once the offers in the NETs were rejected, they could not be revived unilaterally by the tenant purporting to accept them by returning the reply slips on 14 August 2013 as alleged[5].

23.  The Tribunal also held that time was of the essence for the renewal of the tenancies in case the NETs were taken as offers, so the further negotiations between Ms Fok and Mr Lee on 13 August or beyond should be independent of the NETs[6].

24.  As for Ms Fok’s utterance of “OK” to the terms proposed by Mr Lee on 13 August, the Tribunal held this word was just part of the whole conversation and should not be taken out of context.  The Tribunal accepted Ms Fok’s evidence she had also said she would only pass the proposal to her boss for decision[7], and the landlords’ submission that Ms Fok had on no occasion held herself out as having authority other than getting offers and communicating them to her boss or the landlords[8]. The Tribunal ruled that the utterance of the word “OK” did not constitute acceptance of the tenant’s proposal[9].

25.  The Tribunal further held that at most, the utterance was just acknowledgment of the tenant’s proposal and the terms, if agreed, were subject to the formal agreement and payment of the administration fee and the increase in rental deposits[10].

26.  On the tenant’s case of estoppel, the Tribunal accepted the landlords’ submission that having regard to clause 27 in part 1 of the 2010 tenancy agreements and clause 5 of the NETs, when the debit notes referred to “new rent” for the period from 13 August 2013, they did not suggest that a new tenancy agreement was in place[11].  The Tribunal rejected Mr Lee’s evidence that when he received the letters dated 24 August 2013 demanding delivery of vacant possession, he was assured by Ms Fok that the letters were a mistake and could be ignored[12].  The Tribunal further found that the debit notes had been set in a fixed format in the landlords’ accounting system which the landlords might not be able to revise in time and, albeit initialled by someone, did not point unequivocally to the conscious mind of the landlords accepting a new tenancy, similar to the situation in Dreamgate Properties Ltd v Arnot [1998] 76 P & CR 25.

27.  Hence, the tenant’s case of a new tenancy based on contract failed because there was no evidence of an offer made by one party accepted by the other, and its case based on estoppel failed because there was no evidence of a representation of a new tenancy and reliance on any such representation[13].

This appeal

28.  It is unnecessary to deal with each of the grounds of appeal in the notice of appeal as a number of them were not referred to in the skeleton submission of Mr Jason Wong, who appeared for the tenant on appeal and below.  As mentioned at the outset, the major issues at trial and on appeal are whether there was a binding agreement to renew the tenancies, and if not, whether the landlords are estopped from denying the existence of the renewed tenancies.

29.  In summary, these were the arguments advanced by Mr Wong on appeal.

30.  Mr Wong repeated his submission below that an oral agreement was made when Ms Fok said “OK” in response to Mr Lee’s indication that the tenant would agree to the landlords’ terms to renew the tenancies.  This agreement was followed by the debit notes on 22 August 2013 which were evidence of the agreement, or at least representations that there was agreement for the renewed tenancies.

31.  Mr Wong submitted that the Tribunal was in error in finding that the NETs only constituted invitations to treat.  He contended that in case of ambiguity, the NETs should be construed contra proferentem as they are the documents of the landlords.  The Tribunal should have held that the landlords had made offers in the NETs and the tenant had accepted the offers by returning the reply slips.  The concluded agreements for new tenancies were partly performed when the leasing agent demanded for payment of rent at the new rates.

32.  Further, the Tribunal was in error in holding that time was of the essence in accepting the offers in the NETs as it was Ms Fok’s evidence that the landlords did not take it seriously that the tenant had to return the reply slips by the deadlines stipulated[14] and Ms Fok had not told Mr Lee at any time it was too late to renew the tenancies[15].

33.  The Tribunal was also in error in holding that there was no binding agreement until a formal tenancy agreement was signed.  Mr Wong submitted that it should have held that the parties had made a binding agreement pending a formal document to be drawn up.  And once the tenant was able to show that a binding agreement was reached, the onus shifted to the landlords to prove otherwise, citing Donwin Productions Ltd v EMI Films Ltd, The Times, 9 March 1984.

34.  Mr Wong further submitted that Dreamgate Properties should be distinguished as the debit notes and official receipts, although computer generated, were signed by staff acting on behalf of Winland Enterprises.

35.  He also contended Ms Fok should have apparent authority to enter into new tenancy agreements for the landlords.

36.  He argued that having demanded payment at the new rate which was described as rent, Winland Enterprises as the leasing agent had made a representation to the tenant that the reply slips were treated by the landlords as having renewed the tenancies.  The elements to found an estoppel were present.

If there was a binding agreement to renew the tenancies

37.  It is unnecessary to consider if the Tribunal was correct in holding that the terms put forward in the NETs constituted merely an invitation to treat and not an offer.  As rightly pointed out by Mr Erik Shum, who appeared for the landlords on appeal, Mr Wong has not challenged the Tribunal’s separate holding that the tenant’s attempts to negotiate for lower rentals amounted to counter-offers, even if the terms in the NETs were found to be offers by the landlords.  It is settled law that a counter-offer amounts to rejection of the offer and once an offer is rejected, the offeree cannot revive it unilaterally by saying that he has later accepted it (Lee Siu Fong Mary v Ngai Yee Chai [2006] 1 HKC 157 at §15, citing Hyde v Wrench (1840) 3 Beav 334 and Norfolk County Council v Dencora Properties Ltd, English Court of Appeal, 1995 WL 1083744, 9 November 1995).

38.  By putting forward different figures for the rentals on renewal, this amounted to rejection of the offers in the NETs accompanied by the tenant’s counter-offer, which was not accepted by the landlords.  The offers in the NETs had been rejected by the tenant and had lapsed, and could not be revived by subsequent acceptance by the return of the reply slips.  The fact that Ms Fok had not told Mr Lee at any time it was too late to renew the tenancies is wholly irrelevant.

39.  What happened then was a new verbal offer was made by the tenant on or about 13 August 2013 to renew the tenancies at the rentals as originally proposed by the landlords[16].  On the evidence of Ms Fok, which was accepted by the Tribunal, this offer was not accepted by the landlords.  Her utterance of “OK” to Mr Lee’s proposal must be considered in the context of the whole conversation, in particular her statement to Mr Lee that she would only pass the proposal to her boss for decision.  In view of the restriction in section 11(2) of the Lands Tribunal Ordinance, Cap 17 that an appeal must be based on an error of law, there is no basis to interfere with this finding of fact which is within the exclusive province of the Tribunal.

40.  Nor is there any basis to interfere with the Tribunal’s holding that Ms Fok did not have apparent authority to enter into a tenancy agreement on behalf of the landlords.  All that Mr Wong was able to point to was that Ms Fok had signed the debit notes and official receipts, but there was simply no evidence that Ms Fok was held out as having authority to enter into a tenancy agreement other than getting offers and communicating them to her boss or the landlords.

41.  Mr Wong contended that the debit notes issued on 22 August should be regarded as the landlords’ acceptance of the tenant’s new verbal offer to renew the tenancies at the rentals as originally proposed by the landlords.  The mere fact that “new rentals” were demanded in the debit notes did not suggest that a new tenancy was made, as it is clear from the relevant provisions in the 2010 tenancy agreements and the NETs that the payments demanded by the landlords for the period after 12 August 2013 were on the basis of a holding over by the tenant after the expiry of the tenancy for which the tenant was liable to pay market rent.

42.  It is unnecessary to consider whether the Tribunal was correct in holding that time was of the essence in accepting the offers in the NETs, because the offers had been rejected and had lapsed and could not have been accepted by the return of the reply slips on 14 August 2013 as alleged.

43.  It is also unnecessary to consider the question of construction whether the Tribunal was correct in holding that there was no binding agreement until a formal tenancy agreement was signed, as, on the evidence, there was no acceptance of the new verbal offer from the tenant to renew the tenancies at the rentals as originally proposed by the landlords.  Any reliance of the tenant on Donwin Productions Ltd v EMI Films Ltd is misplaced.

If there was estoppel

44.  For there to be estoppel, the tenant must show a clear and unequivocal representation that there was a new tenancy agreement on the expiry of the old tenancies on 12 August 2013.  The words “new rent” or “rent” in the debit notes and official receipts could not be regarded as amounting to such a clear and unequivocal representation, when they are considered together with clause 27 in part 1 of the 2010 tenancy agreements and clause 5 of the NETs, as these clauses provided that the landlords would be entitled to payment at the market rent if the tenant should fail to deliver up vacant possession within time.  The Tribunal is clearly correct in holding that the reference to “new rent” in the debit notes and receipts did not suggest a new tenancy and does not give rise to estoppel.

Conclusion

45.  For all the above reasons, the tenant has failed to make good its case of a binding agreement for renewal of the tenancies or that the landlords are estopped from denying there was such a renewal.  The appeal must be dismissed.

46.  As there was indication from Mr Wong there might be argument on costs, we make an order nisi the tenant should pay the costs of the appeal to the landlords.  If there is no application to vary the order nisi within 14 days hereof, the order shall become absolute.