ZENUNA LTD v. PROGRESS YEAR INTERNATIONAL LTD AND ANOTHER

HCA2373/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2373 OF 2002

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J U D G M E N T

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1. The plaintiff was the landlord, the 1st defendant was the tenant of Shop 917 of the Times Squares. The tenancy agreement was for a term of three years from 19 June 1999 to 18 June 2002.

2. By a notice of termination dated 5 December 2001 the plaintiff gave the defendants six months notice of termination. This notice by letter was addressed to the 1st defendant at Flat 1, Block J, 26/F, Beverley Hill, 6 Broadway Road, Happy Valley, Hong Kong.

3. Just before this appeal was heard, the 1st defendant raised one further point of service of this notice of termination by saying that the address was wrongly stated. Instead of Broadway Road, it should be Broadwood Road. There is, of course, no "Broadway Road" in Hong Kong and Beverly Hill is in Broadwood Road. I accept the plaintiff's submission that it is inconceivable that the notice of termination would have been dispatched to a wrong place. Even Mr Ku Sing Man of the 1st defendant admitted that he "received the letter dated 5 December 2001". It was in the context of by way of reply to the Amended Statement of Claim and the 1st defendant must have meant the letter dated 5 December 2001 to be the notice of termination as there is no other letter of that date. Thus, when Mr Ku said he had not received the notice of termination, he actually deviated from his earlier version.

4. In any event, the notice of termination was sent to the 1st defendant by registered post and there was no return mail from the post office. This notice of termination was sent to the registered office and the principal place of business of the 1st defendant according to the annual return of the 1st defendant dated 19 August 2001 filed with the Company Registry. Thus I accept the plaintiff's submission that the said notice was duly served and the tenancy agreement was duly terminated on 18 June 2002.

Collateral Warranty or Agreement

5. This is the main defence of the 1st defendant. The 1st defendant alleged that in or about May 1999, before signing the written tenancy agreement, the two parties had entered into a collateral oral agreement by which it was agreed that in consideration of the 1st defendant taking up the excessive 2,000 square feet premises, the plaintiff agreed to grant the 1st defendant the right to "renew" the existing tenancy agreement at the then prevailing market rent, with all the terms and conditions of the tenancy agreement remaining unchanged. The 1st defendant further alleged that in or about early or mid-June 1999, one Felix of the plaintiff represented, warranted or ensured over the phone to Mr Ku of the 1st defendant that should the 1st defendant take up the tenancy for the whole of the premises at the terms and conditions of the tenancy agreement and fully performed the tenancy without any problem, the plaintiff would definitely grant to the 1st defendant the right to renew the existing tenancy for a further term of two years at the prevailing or fair market rent at the time of the renewal of the tenancy with all other terms and conditions of the tenancy agreement remaining unchanged.

6. However, under section XII, clause 6(1) it was provided that:

"The tenancy agreement set out the full agreement reached between the parties and no other representations had been made or warranties given relating to the Plaintiff or the 1st Defendant or the building or the Premises and if any such representation or warranty had been given, given or implied, the same was thereby waived."

7. Thus the tenancy agreement had expressly ruled out any other prior representation made or warranty given relating to the plaintiff or the 1st defendant for the premises even if, which was denied by the plaintiff, that such a representation or warranty was given.

8. In the case of Innterpreneur Pub Co. v. East Crown Ltd, 28 July 2000, Lightman J held that:

"For [an entire agreement] clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that, accordingly, any promises or assurances made in the course of the negotiations ... shall have no contractual force, save in so far as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence ... it is to denude what would otherwise constitute a collateral warranty of legal effect."

9. Thus, the 1st defendant is precluded by section XII, clause 6(1) of the tenancy agreement from relying on the alleged "collateral oral agreement" and oral representations, warranties and assurances even if the allegation was true.

10. Further, the 1st defendant's allegations as aforesaid, were incredible since they were inconsistent with the contemporaneous document. The 1st defendant in its letter dated 3 October 2001 stated that in or about June 1998, when it started to negotiate with the plaintiff about the tenancy of the unit, when it enquired about the renewal of the tenancy with the plaintiff, the plaintiff had replied that the tenancy of the unit would not be renewed. The 1st defendant just requested the plaintiff to grant another two to three years' tenancy.

11. In any event, the plaintiff became aware of the 2nd defendants' occupation of the premises when the 2nd defendants sought to join in these proceedings in August 2002. It then transpired that on or about 16 July 2001, the 1st defendant entered into a written agreement with the 2nd defendants whereby the 1st defendant would transfer the business at the premises together with all its equipments to the 2nd defendants with effect from 31 July 2001 at a price of $2 million. In late July 2001, the 2nd defendants took possession of the premises and redecorated various parts thereof and installed new equipments/machinery.

12. The 1st defendant was clearly in breach of section V, clause 21 of the tenancy agreement by which the 1st defendant agreed :

"not to assign, sublet, share, part with the possession of or transfer the premises or any part thereof for any interest therein nor permit or suffer any arrangement or transaction whereby any person was not a party to the tenancy agreement obtained the use, possession, occupation or enjoyment of the premises or any part thereof irrespective of whether any rental or other consideration was given therefor. The tenancy should be personal to the 1st defendant."

13. Thus, even according to the 1st defendant's case, the right to renew the tenancy was to be granted to the 1st defendant only if the 1st defendant "fully performed the tenancy without any problem". Here, the 1st defendant is clearly in breach of the tenancy agreement.

14. Since both defendants cannot raise any defence to the plaintiff's action, the defendants' appeal is dismissed with costs to the plaintiff against the 1st defendant to be taxed on a solicitor-and-own client basis, if not agreed, pursuant to clause 6 section 8 of the tenancy agreement between the plaintiff and the 1st defendant and against the 2nd defendants to be taxed on a party and party basis, if not agreed.

Stay of execution

15. The defendants applied on 11 February 2003 for a stay of execution of the judgment for six months on the condition that they would continue to pay the rental to the plaintiff. The primary ground of their application is that the 2nd defendants would suffer grave hardship if the stay is not granted.

16. However, the 2nd defendants are trespassers and their possession was unlawful at its inception. They are therefore not in a position to apply for a stay, as a trespasser cannot seek from the court an order staying proceedings for possession (See McPhail v. Persons & Others [1973] 1 Ch 447).

17. The 1st defendant was no longer in possession of the premises and it has not advanced any reason pertaining to itself that there should be a stay at the instance of the 1st defendant.

18. Be that as it may, even a former tenant or licensee carrying on a business at a property, who applies for a stay of order of possession against him, should be granted by the court no more time than is reasonably necessary to enable him to vacate the property and not what is reasonable time to enable him to set up his business in another location (see Alabama Investment Co. Ltd v. Chaintext Co. Ltd & Another [1993] 2 HKC 293 at 298-299).

19. On the other hand, the plaintiff has been wrongfully denied possession of the premises by the defendants for a period of seven months since the expiry of the tenancy to the date of judgment of Master Ho granted on 2 December 2002. There is a further delay in the execution because of the defendants' appeal. On the part of the defendants, it should be said that they have been given ample time to vacate the premises and relocate the 2nd defendants' business elsewhere.

20. On the plaintiff's side, it was already carrying out a 2-phase to launch a "9/F Kids Kingdom Reconfiguration Project" at the Times Square which was anticipated to be substantially completed in August 2002. Promotion by the plaintiff's managing agent has been already started in July and August 2002.

21. It was exactly for the same reason that the plaintiff had no intention to renew the tenancy with the 1st defendant and served upon the 1st defendant a notice of termination in December 2001. The plaintiff planned to divide the premises into four units. The plaintiff had suffered losses as a result of the aborted leases with new tenants because of the unavailability of the premises. The rental income, on the basis of terms of the four letters of offer received by the plaintiff, should exceed the present rental income by almost $70,000 a month, apart from the immeasurable loss of goodwill of the plaintiff as a responsible and reputable landlord.

22. By reasons of the aforesaid matters the defendants' application for stay of execution is dismissed with costs to the plaintiff.