WO SHING AND ANOTHER v. MAN KWOK LEUNG

DCCJ 4080/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4080 OF 2005

--------------------

-------------------

JUDGMENT

1.  This is a claim made by the Plaintiffs as the landlord of Workshop No.4, Ground Floor of Goodview Industrial Building, No.11 Kin Fat Street, Tuen Mun ("Premises"), for recovery of rent and utility charges payable by the Defendant as tenant under a tenancy agreement dated 15 December 2004 ("Tenancy Agreement").  The claim also includes costs incurred by the Plaintiffs as a result of the Defendant's breach in carrying out unauthorized works within the Premises which had to be reinstated.

2.  The Tenancy Agreement was for a term of 5 years commencing on 18 March 2005, at a monthly rent of HK $13,000.  The Tenancy Agreement was signed by Mr. Wo Shing on his own behalf and on behalf of his wife, Leung Shau Chun, as landlord and by the Defendant as tenant.

3.  The name of a company, 鑽業有限公司, appeared below the name of the Defendant in parenthesis in the Tenancy Agreement.  No company in fact exists under this name.  It is the Plaintiffs’ case that at all material times, the Plaintiffs had contracted with the Defendant personally.

4.  The Plaintiffs claim that in breach of the Tenancy Agreement, the Defendant failed to pay the monthly rental from 18 May 2005, and on the basis of the Defendant's breach, the Plaintiffs terminated the tenancy and re-entered the Premises.  Vacant possession of the Premises were in fact surrendered by the Defendant to the Plaintiffs on 13 September 2005.  It was discovered that in breach of the Tenancy Agreement, the Defendant had made alterations to the internal layout of the Premises without the Plaintiffs’ consent, and had failed to reinstate the Premises prior to delivery of vacant possession.  The Plaintiffs therefore claim HK $755,555.55  as outstanding rent due and the balance of the rent payable for the remainder of the contractual term of the Tenancy Agreement, as well as a sum of HK $67,000 as the expenses of the reinstatement work required to restore the Premises to its condition at the commencement of the tenancy.

5.  In his Defence, the Defendant claims that a company known as Ideal Commodities (HK) Company Ltd. 鑽業(香港)有限公司 ("Company") was the tenant under the Tenancy Agreement, the name 鑽業有限公司 being a misnomer of the Company.  The Defendant claims that he was a director of the Company and was acting on behalf of the Company when the Tenancy Agreement was executed, as was made known to the Plaintiff. 

6.  The Defendant also claims that the Plaintiff had fraudulently or recklessly represented to the Defendant prior to the execution of the Tenancy Agreement that the Premises were capable and suitable for operating a canteen, which representation was false, and that the Defendant in his capacity as a director of the Company had acted in reliance on such representation when he entered into the Tenancy Agreement.  After entering into the Tenancy Agreement, the Defendant was unable to obtain the necessary licence for the operation of a canteen at the Premises, which could not be used for this purpose unless there was an alteration of the permited user of the Premises, or the necessary waiver from the Lands Department.

7.  Finally, the Defendant claims that it was an implied term of the Tenancy Agreement that the Premises were capable and suitable for operating a canteen, but in breach of the Tenancy Agreement, the Plaintiffs failed to deliver the Premises as being capable and suitable for operating a canteen. 

8.  The Defendant counterclaims for damages, a declaration that the Tenancy Agreement had been rescinded by the Plaintiffs' fraudulent misrepresentation, and for refund of his wasted costs, including a sum of HK $614,089 being the wasted costs of decoration and renovation works for the Premises.  He further seeks refund of the sum of HK $34,800 as the rental and electricity meter deposits paid under the Tenancy Agreement.

The Issues

9.  The main issues on liability are as follows :

(1)	whether the Defendant was personally liable under the Tenancy Agreement;
(2)	whether the Plaintiffs had made the alleged representation to the Defendant prior to the signing of the Tenancy Agreement, that the Premises are capable and suitable for operating a canteen;
(3)	whether there was an implied term, as alleged, that the Plaintiffs should deliver to the tenant under the Tenancy Agreement premises which are capable and suitable for operating a canteen.

Whether Defendant is personally liable as tenant

10.   On the first issue, since the Defendant is not denying that the Tenancy Agreement had been made, the question of the Defendant's liability under the Tenancy Agreement must be a question of the objective construction of the Tenancy Agreement.  The parties' subjective declarations of intent must be excluded from the admissible material.  The court is to consider what would have been the intention of reasonable persons in the position of the Plaintiffs and the Defendant, being the actual parties to the Tenancy Agreement, as to the identity of the tenant according to the words used in the Tenancy Agreement, and as to the obligations assumed by the Defendant by virtue of the words used in the Tenancy Agreement.

11.  I accept the submissions of counsel for the Plaintiff that once a contract is reduced into writing, evidence is not admissible to vary or qualify the terms of the written contract.  Evidence of subsequent action is also inadmissible to interpret the written contract.

12.  Moreover, the law is clear that where a person signs a contract in his own name without qualification, he is deemed to be a person contracting personally, and to prevent such personal liability from attaching, it must be apparent from the other portions of the document that he did not intend to bind himself as principal.  Merely describing oneself in the body of the contract as an agent for a named principal has been held to be insufficient to exclude personal liability ( Paice v. Walker (1870) 5LR Ex. 173).

13.  Adopting the approach described in paragraphs 10 to 12 above, the party named in the Tenancy Agreement as "tenant" is the Defendant.  The name 鑽業有限公司appears in brackets after the name of the Defendant on page 1 of the Tenancy Agreement.  However, page 2 of the Tenancy Agreement clearly identifies the tenant, or Party B, as the Defendant without any reservation, although the name 鑽業有限公司is inserted in the space marked "name of the tenant's company".  The meaning of the description "name of the tenant's company" is unclear, and does not necessarily refer to the identity of the party contracting as tenant.  By way of contrast, the description "name of tenant" is unequivocal, and clearly is intended to refer to the identity of the party contracting as tenant.  Here, the name of the Defendant appears, again without qualification.  When the Defendant signed the Tenancy Agreement, he signed his name in the space designated for "Tenant (Party B)", without any reservation as to his acting as agent for, or on account or on behalf of 鑽業有限公司or the Company. 

14.  Further, there cannot be any dispute that there is and never was any entity existing under the name 鑽業有限公司.  The Defendant cannot act for a fictitious entity, and there is no claim by the Defendant for rectification of the Tenancy Agreement to the effect that the Company (鑽業(香港)有限公司) should be the named tenant under the agreement.

15.  In my judgment, I find that the Defendant contracted as tenant under the Tenancy Agreement, and without having expressly in the body of the Tenancy Agreement excluded his personal liability in any way, the Defendant assumed personal liability under the Tenancy Agreement.

Whether representation made

16.  The Defendant claimed in his statement made on 22 December 2006 that during his first meeting with Mr. Wo Kin On ("Kin On") when the Defendant was shown the Premises, the Defendant had informed Kin On that he planned to establish a food production business and a canteen business, and that the Premises were intended for the canteen business.  The Defendant also claimed in his statement that during the time when the Defendant was visiting the Premises and negotiating the terms of the contemplated tenancy with Kin On, the Defendant had invited Kin On's father, Mr. Wo Shing ("Mr. Wo"), to visit the Defendant's food production business at Kin Fat Center, which was near Goodview Industrial Building where the Premises are situated.  Immediately after this visit, the Defendant mentioned to Mr. Wo and Kin On that he had to obtain a canteen licence for the canteen business which he proposed to carry out at the Premises.  In his statement, the Defendant claimed that Mr. Wo represented to him that this should not be a problem as there was a fast food eatery at Goodview Industrial Building which had been in business for many years.  The Defendant also claimed that Mr. Wo "represented or warranted to him that the Premises were capable and suitable for operating a canteen", and that the Premises were "best suited" for his purposes, and that the Plaintiff could assist and facilitate fully in the Defendant's application process for the canteen license, and would not do anything to hinder the application process.

17.  The Defendant’s oral evidence in court was not so certain in relation to the alleged representation which Mr. Wo had made to him.  When asked what Mr. Wo had allegedly warranted about the suitability of the Premises, the Defendant's answer was that Mr. Wo had said that "there should not be any problem" for the Premises to be used as a canteen, and that "as they were in the same boat", the Plaintiffs would assist the Defendant should there be any problem, although the Plaintiffs would not be able to assist in relation to compliance with the conditions imposed by the Food and Environmental Hygiene Department ("FEDH").  When asked specifically in relation to the warranty of the suitability of the Premises for a canteen, the Defendant's evidence was that Mr. Wo said that business at the Premises would certainly be good, although the Defendant admitted that he did not know if this constituted a "warranty".  The Defendant also said in evidence that Mr. Wo "gave him the impression" that "it would work good", and that he had taken this to mean that the application for a canteen licence would "work good", as he would have doubts if Mr. Wo had intended to mean that business at the Premises "would work good", when no one can guarantee that business would be good.  When the Defendant was pressed as to the exact words used by Mr. Wo, the Defendant's answer was that Mr. Wo considered that it was a good choice to use the Premises as a canteen, and that it would certainly work, or be good （一定會好）.

18.  Mr. Wo's evidence is that although the Defendant had informed him that he intended to operate a canteen at the Premises, Mr. Wo had said that the Premises can only be used for industrial purpose, and he could not guarantee that a canteen could be operated there.  According to Mr. Wo, the Defendant had told Mr.Wo that he did not have to worry about this, because the Defendant had a consultant and would be using the consultant's services in relation to the operation of the canteen business.

19.  Mr. Wo's evidence is that he had met the Defendant's consultant when he visited the Defendant's food production business at Kin Fat Center.  The consultant was introduced to him by the Defendant as Mr. Hon, who was a food licence consultant according to his name card, which was given to Mr. Wo.  Mr. Hon visited the Premises with Mr. Wo and the Defendant, and Mr. Hon was also introduced to Kin On at the Premises.

20.  Kin On's evidence supports that of his father.  According to Kin On, the Defendant had visited the Premises on more than 10 occasions prior to entering into the Tenancy Agreement, and on most of these occasions, the Defendant came with his consultants.  He confirmed that Mr. Hon was introduced to him as a food licence consultant.  Kin On accepted that the Defendant had mentioned that he intended to operate a canteen at the Premises, but Kin On had told the Defendant that the Premises could only be used for industrial purpose, and that the Defendant might not be able to run a canteen there.  According to Kin On, the Defendant's consultant who had accompanied the Defendant to the Premises had said that he could apply for a licence to operate a canteen under the name of a food center, and the consultant had informed Kin On that they would handle the application for the canteen licence themselves and that the Plaintiffs as landlord would not be liable for this.  Kin On's evidence was that he had made it clear that he could not warrant that the Premises were suitable for operating a canteen.

21.  In relation to Mr. Hon's role, the Defendant maintained that he was responsible for the design of the kitchen for his food production business at one of the premises at Kin Fat Center rented for the purpose.  The Defendant had wanted Mr. Hon to act as the consultant for the canteen business to be operated at Goodview Industrial Building, but Mr. Hon was too busy and was not easily accessible.  According to the Defendant, Mr. Hon's advice was that the Premises could be used as a canteen as the Hong Kong government was relaxing the restrictions on use of industrial buildings, and that there should be no problem if the landlord agreed to the Premises being used as a canteen, although Mr. Hon would still have to see if there were illegal structures within the Premises.  The Defendant insisted that it was just a coincidence that Mr. Hon was able to visit the Premises with the Defendant and Mr. Wo, and that it was not a pre-arranged visit.

22.  Counsel for the Plaintiffs argued that the Defendant had sought and relied on the professional advice given by his own consultants such as Mr. Hon when the Defendant decided to rent the Premises on the terms set out in the Tenancy Agreement.  Even if Mr. Wo had made any representation with regard to the suitability of the Premises for use as a canteen, the Plaintiffs claim that the Defendant had not relied on Mr. Wo's alleged representations.

23.  I am not satisfied on the evidence that Mr. Wo had represented to the Defendant that the Premises were capable or suitable for use as a canteen.  On the Defendant's evidence, I cannot safely conclude that the words used by Mr. Wo (even assuming that they were indeed uttered, as alleged by the Defendant) can reasonably be understood or accepted as a warranty as to the capability or suitability of the Premises for the operation of a canteen.  Even on the Defendant's case, what Mr. Wo said was that "there should not be any problem", which falls short of a guarantee or warranty as alleged.  Moreover, as counsel for the Plaintiffs pointed out, the alleged statements that "it would work good" and that the Premises "were a good choice" sound like and should reasonably be taken as mere puff or sales talk, such that it was not reasonable in the circumstances for the Defendant to place reliance on any such representation.  It is more inherently probable that the Defendant had relied on the professional advice from Mr. Hon or his other food business consultants.

24.  Counsel for the Plaintiffs validly pointed out that the Defendant's evidence as to the representations made by Mr. Wo is not consistent with the parties' agreement to include clause 21 in the Tenancy Agreement.  Clause 21 provides that all alterations within the Premises, including use of the property, alterations to the mezzanine floor, food licence, fire services facilities, water, electricity, drainage and ventilation, have to be applied for by the tenant solely and at its own expense, to obtain all licences required by law, and that the landlord will not make arrangements. 

25.  Clause 21 reads as follows : -

“	舖内所有改動， 包括物業用途、 閣樓修改、飲食牌照、 消防設備、 水電排污、 通風抽氣等事項， 須由乙方自行申請法定之所有牌照及費用。( 甲方不做安排 )”

26.   These express provisions of clause 21 contradict the representations allegedly made by Mr. Wo to the Defendant, if the Defendant's evidence is to be accepted.  If Mr. Wo had indeed warranted that the Premises were suitable for use as a canteen, and in particular if Mr. Wo had warranted that he would assist if there should be any problem with the use of the Premises as a canteen, Mr. Wo would not have provided in clause 21 that the Defendant would have to apply for licences for such alterations and that the Plaintiffs as landlord would not have to make any arrangements at all. Certainly the Defendant would not have agreed to these provisions in clause 21, when they contradict the warranty that Mr. Wo had allegedly given.

27.  Counsel for the Defendant had referred to clause 7 of the Tenancy Agreement, which provides that the Premises should only be for "legal use", as somehow supporting the Defendant's case that the parties had not intended to restrict the Premises to industrial use, or had intended that the Premises should be used as a canteen.  The Plaintiffs do not dispute that the Defendant had indicated that he would like to use the Premises as a canteen, and they did not object to this, although they were not sure if this could be done and had told the Defendant so, and the Defendant was to deal with all necessary permits or licences including the permit for change of the industrial use of the Premises.  I do not agree that clause 7 and the provision of "legal use" clearly supports the Defendant's arguments in relation to the Premises being warranted as being suitable for use as a canteen, or that the Premises were intended to be used as a canteen.  Clause 7 can equally support the Plaintiffs’ case on the meaning and effect of clause 21, by which the parties unequivocally agreed that the tenant would be solely responsible for all alterations including the change of the use of the property and the application for the necessary food licence in accordance with the law, to emphasize that the Defendant's ultimates use of the Premises as a canteen or otherwise must be lawful and permissible only after the necessary licences have been obtained at the Defendant's sole arrangements and expense in accordance with clause 21.

28.  On balance, therefore, I am not satisfied that Mr. Wo had made the representations alleged by the Defendant. 

Whether implied term

29.  The Defendant pleads that it is an implied term of the Tenancy Agreement that the Plaintiffs shall deliver to the Defendant premises which are capable and suitable for running a canteen.

30.  The law is clear that any term to be implied in a contract must comply with the conditions stated in the case of B.P. Refinery (Westernport) Pty Ltd v. President, Councillors and Ratepayers of the Shire of Hastings (1978) 52 ALJR at p.26 ( Kensland Realty Ltd. v. Whale View Investment Ltd. FACV No. 10 of 2001).  The term (1) must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; and (5) it must not contradict any expressed term of the contract.

31.  The term which the Defendant seeks to imply into the Tenancy Agreement is inconsistent with the express provisions of clause 21 of the Agreement which provides, inter alia, that the Defendant as tenant should be solely responsible for applying for change of the use of the property, and that the Plaintiffs as landlord had no obligation to make any arrangements for the applications for change of the use of the property or the necessary food licence.  The alleged implied term is also inconsistent with clause 7 of the Tenancy Agreement which provides that the Premises can only be for legal use.  If the Defendant fails to make the necessary arrangements for securing the necessary licences to operate a canteen at the Premises, or fails to secure such licences despite making all the arrangements (as in the present case), the canteen business cannot be legally carried on at the Premises.  Since the term contended for by the Defendant contradicts the express provisions and effect of clauses 7 and 21 of the Tenancy Agreement, it cannot be implied. 

32.  It is not necessary to deal with the other conditions stated in paragraph 30 above in detail, but in my judgment, it is also not necessary to imply the term contended for by the Defendant into the Tenancy Agreement, which works effectively without the term.

Quantum

33.  The Plaintiffs’ claim against the Defendant for breach of the Tenancy Agreement is for the outstanding rent before the delivery of vacant possession on 13 September 2005 and the rent for the remainder of the term of five years under the Tenancy Agreement ("Rent Claim"), the outstanding electricity and water charges ("Utility Charges Claim"), and expenses incurred for reinstating the Premises after delivery of vacant possession as a result of the unauthorized alteration works carried out by the Defendant without the Plaintiffs' consent ("Reinstatement Claim").

34.  Clause 1 of the Tenancy Agreement expressly provides that the tenant shall not terminate the tenancy during the agreed term of five years, and that in the event of termination during the term, the tenant has to pay the rent for the remainder of the term as compensation.  The Plaintiffs seek in any event to rely on Wong Siu Company Ltd. v. Goldquest International Ltd. HCA 4125/2001 & HCA 3183/2001, 18 August 2006 (unreported) for the landlord's entitlement to claim damages for repudiation of a tenancy agreement, reflected by the rental payable were the agreement to be permitted to run its full course.

35.   The Defendant has not pleaded that the Tenancy Agreement was determinable by notice during the term of five years, nor has the Defendant raised any mitigation defence.  I therefore allow the Rent Claim, in the total sum of HK $753,998.50, and the Utility Charges claim of HK $1557.  

36.  Having heard evidence from the Plaintiffs with regard to the unauthorized alteration works carried out by the Defendant at the Premises, and in the absence of any evidence from the Defendant by way of challenge, I also allow the Reinstatement Claim of HK $67,000.

37.  Credit has to be given for the rental deposit of HK $26,000 and the utilities deposit of HK $8,800 formerly paid by the Defendant under the Tenancy Agreement and currently held by the Plaintiffs.  Thus, the total award in favor of the Plaintiffs is HK $787,755.50.

38.  By reason of my findings on the representation point and the implied term point, the Defendant's counterclaim is dismissed.

39.  There will be an order nisi, to be made absolute within 14 days, that the costs of this action including the costs of the counterclaim be to the Plaintiffs, with certificate for counsel, to be taxed if not agreed.