DAILY WIN DEVELOPMENT LTD v. LIU CHIN HSIANG t/a SUM KEE TRANSPORTATION CO

HCA1382/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1382 OF 2008

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JUDGMENT

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1.  The plaintiff claims against the defendant for outstanding licence fees, balance of rates, Government rent and balance of waiver fees. The centre of dispute is the liability of the defendant for waiver fees assessed by the Government.

UNDISPUTED FACTS

2.  Between 1 June 2003 and 30 June 2008, the plaintiff as owner had granted 6 Licences to use the subject property (“the Property”) to the defendant.  The 6^th Licence, dated 8 May 2008, covered the first 6 months of 2008.  All the Licences required the defendant to pay a licence fee on account at $18,000 per month.

3.  In addition, all the Licences contained the following covenants:

(i)      Clause 3(a): The defendant was to pay all Government rent, rates, waiver fees (if any) of every kind whatsoever in respect of the Property chargeable on the occupier so far as the same were attributable to the right granted.

(ii)     Clause 3(c): The defendant was not to use the Property for any purpose other than those permitted by the Government Lease under which the Property was granted and the defendant should indemnify and keep the plaintiff fully indemnified against all proceedings, claims and demands which may arise as a result of the non-compliance by the defendant.

(iii)    Clause 5(a): The defendant may at its own costs and expenses, with the plaintiff using its reasonable endeavours to assist, apply to the Government for permission to use the Property for the purpose of parking, repairing and re-filling of fuel of cars for the transportation business of the defendant but not further or otherwise and pay all fees thereof.  The plaintiff does not guarantee that the Property was fit for the purposes and whether the application was successful had no effect on this Licence.

(iv)    Clause 5(c): The defendant shall pay the plaintiff a further sum of $18,000 per month on account for payment of the waiver fee until the amount of such waiver fee should have been determined by the Government.  Any shortfall should be paid by the defendant to the plaintiff at least 3 business days before the deadline for settlement of the relevant demand note from the Government.  The defendant further agreed to pay the waiver fee deposit, administrative fee and/or other fees chargeable by the Government in relation to and/or arising out of the application within 7 days from the date the plaintiff notified the defendant that the demand note(s) for such fee had been issued by the Government.

4.  As early as 9 June 2003, the plaintiff, as “current registered owner” has applied for a temporary waiver so that a portion of the Property may be used for “parking, repairing and re-filling of fuel” for the transportation business of the defendant (“the Application”).  Pending grant of the waiver, according to the defendant, he had been using the Property only for parking and refilling of fuel but not for repairing.

5.  On 10 August 2007, the District Lands Office (“DLO”) issued a without prejudice letter to the plaintiff permitting the land users for 3 years fixed term commencing from 9 June 2003 and thereafter quarterly on certain basic terms (“the 2007 Letter”).  Amongst those basic terms, a non-refundable administrative fee of $26,500 was to be paid whilst the waiver fee was “to be determined”. 

6.  By a letter dated 21 August 2007, the plaintiff forwarded the 2007 Letter to the defendant.  The plaintiff stated that if the defendant accepted those basic terms, the plaintiff would pay the administrative fees and seek reimbursement from the defendant.  The plaintiff invited the defendant to note that DLO has not yet assessed the amount of waiver fee; and that if in future the defendant considered the waiver fee to be too high and abandoned the Application, the administrative fee would not be refunded.  The defendant signed in acknowledgement of the plaintiff’s letter.  The plaintiff paid the administrative fee and subsequently got reimbursed by the defendant.

7.  By a letter dated 7 May 2008 (“the 2008 Letter”), DLO proposed the waiver fees to be $415,800 per annum, open for acceptance until 20 May 2008.  DLO stated that if the plaintiff did not find the waiver fee acceptable, the plaintiff could appeal but there was always a possibility that the fee might be increased upon appeal.  The letter further stated:

“5. … Until and unless a revised waiver fee (which may be back-dated to the date of commencement of this proposed waiver) has been agreed with Government, the waiver fee … will be chargeable to you, whether or not the proposed waive (sic) is finally agreed and documents properly executed.

6. This offer is personal to you, [the plaintiff], and in the event of any dealing with the subject property prior to the completion of the legal documents giving effect to this proposed transaction, the basic terms will be deemed to have been withdrawn.

8.  On 9 May 2008, the plaintiff forwarded the 2008 Letter to the defendant, seeking payment of the deposit and waiver fees demanded by DLO after taking into account those paid in advance by the defendant.  The plaintiff reminded the defendant that if the latter considered the waiver fees to be too high and abandoned the Application, vacant possession of the Property should be delivered by 30 June 2008. The plaintiff reserved its rights in the event the Government later on required the plaintiff to pay the waiver fee. 

9.  On 14 May 2008, the defendant gave the plaintiff a Surrender Agreement to terminate the 6^th Licence on 30 June 2008.

10.  On 24 May 2008, the plaintiff demanded the defendant for payment of, amongst others, overdue licence fee, balance of waiver fee and waiver fee deposit.

11.  By a letter dated 30 May 2008, DLO wrote to the plaintiff noting that “a waiver [had] been in existence since 9 June 2003.”  DLO pressed for settlement of the waiver fee and deposit by 12 June 2008.  The plaintiff was reminded of the right to appeal but unless and until a revised waiver fee had been agreed, the stated “waiver fees [would] be chargeable to the plaintiff, whether or not the proposed waiver [was] finally agreed and documents properly executed”.  The Government reserved its right to take appropriate legal action.

12.  By a letter dated 12 June 2008, the plaintiff forwarded DLO’s letter dated 30 May 2008 to the defendant. Noting the defendant’s decision to “abandon” the Application, the plaintiff informed the defendant that the Government would still collect payment of the waiver fee in respect of the period between 9 June 2003 and 8 June 2008.  The plaintiff demanded the defendant to pay in the following 7 days, failing which the plaintiff would take legal action for recovery of the same together with all loss and expenses.

13.  On 12 June 2008, the plaintiff notified DLO of its withdrawal of the Application because of the unreasonably high waiver fees.

14.  On 24 June 2008, DLO reiterated the contents of its letter dated 30 May 2008.  It stated that the permitted user under the waiver shall cease after 30 June 2008.  A demand note revising the waiver fee upwards was issued, which covered the full period of the waiver up to 30 June 2008.  It was to be settled by 7 July 2008 before the waiver fee appeal. 

15.  On 30 June 2008, vacant possession was delivered by the defendant to the plaintiff.  On the same day, the defendant’s solicitors wrote to the District Lands Office to object to the assessment of the waiver fee for the past 5 years.  There was no evidence of a reply to this letter.

16.  On 7 July 2008 the plaintiff paid DLO the waiver fees together with interest to the Government.

17.  Neither party had ever appealed against DLO’s assessment.

18.  The defendant has failed to reimburse the plaintiff for the balance of waiver fees.  He also failed to pay the last 2 months’ waiver fee deposits.

FINDINGS OF FACT

19.  Where the evidence differs between the 2 witnesses, I prefer the evidence of PW1 (Mr Poon) to that of DW1 (the defendant). I find the former to be a truthful witness whose evidence is borne out by contemporaneous documents and their true construction.  Further analyses on issues of facts will be dealt with below.

MERITS OF THE PLAINTIFF’S CASE

20.  I find that the plaintiff has used its best endeavours to assist the defendant in the Application pursuant to Clause 5(a) of the Licence.  This could be seen from the contemporaneous documents showing the prompt response of the plaintiff to DLO’s requisitions and forwarding of DLO’s letters or demand notes to the defendant.  The permission from the Government was obtained as confirmed by DLO’s letter dated 30 May 2008 noting that a waiver had been in existence since 9 June 2003.  The waiver fee was determined within the meaning of Clause 5(c) and the Government had demanded for its payment.  The defendant had been acting in breach of the Government lease right from the start well knowing that he had to pay a waiver fee based on the Government’s assessment.  Under Clause 5(a) he should top up the difference between the assessed waiver fee and his waiver fee deposit.  In any case, he is liable under Clause 3(a) and should indemnify the plaintiff under Clause 3(c).  The defendant did not appeal against the Government’s assessment or seek the plaintiff’s assistance in doing so.  He simply walked away. 

THE DEFENCE

21.  The defence can be broadly classified into 5 heads:

(1)     That there was no basis for the Government to demand payment of the waiver fee as set out in the 2008 Letter (“the Lack of Basis Issue”).

(2)     That the plaintiff acted as his agent in the Application.  The plaintiff breached their fiduciary duties in failing to seek prior consent of the defendant to the amount of waiver fee assessed before accepting and paying the same (“the Agency Issue”).

(3)     That the plaintiff was guilty of misrepresentation in their letter to the defendant dated 21 August 2007 (“the Misrepresentation Issue”).

(4)     That the plaintiff deliberately withheld the determination of the Government waiver fee before executing the 6^th Licence (“the Deliberate Concealment Issue”).

(5)     That the defendant had abandoned the Application and was hence entitled to refund of the waiver fee deposit (“the Abandonment Issue”).

(1)     The Lack of Basis Issue

22.  As landlord, the Government had the full power to determine the fee if a waiver was granted.  It would be a matter of negotiation between it and the lessee.  Consent of the defendant was not required.  The defendant’s only “right” was to appeal to the Government through the plaintiff but he had not exercised this right even though reminded by the plaintiff of it.

23.  It is true that the Government did not commit itself in the 2007 and 2008 Letters.  The terms (save for the need to pay the administrative fee) were all subject to contract.  The 2007 Letter was virtually an agreement to agree the waiver fees.  I agree with the defendant that by endorsing on the plaintiff’s letter dated 21 August 2007 his commitment was only to pay that fixed administrative fee. 

24.  It was not until the 2008 Letter that the waiver fee was determined.  Again, the Government did not commit itself but stated in a firm tone in the letters of 30 May and 24 June 2008 that the waiver fee would be chargeable to the plaintiff. There was a demand for payment coupled with a threat of legal action, which the Government was entitled to give.  The plaintiff, being privy to the government lease, was obliged to pay whether or not there was an appeal or properly executed documents.  To avoid the risk of enforcement action and increase of the waiver fee upon appeal, it was perfectly reasonable for the plaintiff to meet the Government’s demand by the deadline on 7 July 2008.

25.  The defendant has overlooked that his liability to pay the waiver fee was premised on the Licences and not his endorsement of the various letters issuing between the Government and the plaintiff.

26.  I find no merits in this line of defence.

(2)     The Agency Issue

27.  It is true that the plaintiff was acting as agent of the defendant in the Application.  However, being privy to the Government lease and not wanting any enforcement against themselves, the plaintiff was also acting as a principal.

28.  As contractual agent, the plaintiff has already passed on all information from the Government to the defendant.  As conceded by Mr Lau, counsel for the defendant, there was no duty on the plaintiff as agent to advise the defendant.  As analyzed under the preceding Issue, the consent of the defendant to the assessed waiver fee was not required under the Licences.  The right of appeal was not exercised. 

29.  This line of defence fails.

(3)     The Misrepresentation Issue

30.  The defendant claims that if he were liable for the waiver fees because of his endorsement of the 2007 Letter, that was due to the misrepresentation by the plaintiff.  He claimed that the plaintiff only advised him in their letter dated 21 August 2007 that he was obliged to pay the administrative fee but not the waiver fee.

31.  The plaintiff’s representation that the administrative fee must be paid and was not refundable was correct on a true construction of the letter dated 21 August 2007.  The amount of waiver fee was unknown at that time and the plaintiff made no representation that the defendant needed to pay what waiver fee.  There was no misstatement of any fact.  This issue has been rightly abandoned by Mr Lau.

(4)     The Deliberate Concealment Issue

32.  The defendant asserts that the plaintiff deliberately withheld the 2008 Letter when the latter executed the 6^th Licence.  Were that Letter disclosed to the defendant before the execution, the defendant would not have entered into that Licence.

33.  The agreed evidence (amply supported by contemporaneous documents) was that the defendant first executed the 6^th licence at the end of April 2008 and the plaintiff on 7 May 2008.  The plaintiff admitted receiving the 2008 Letter on the day of its issue, one day before their execution of the 6^th licence. However, the 2008 Letter was addressed to another officer who was not the director executing the 6^th Licence on behalf of the plaintiff.  It took 2 days for the plaintiff to find an officer to sign the letter dated 9 May 2008 forwarding the 2008 Letter to the defendant.

34.  I accept the evidence of PW1 and do find that when the director executed the 6^th Licence, the 2008 Letter was not before him.  There was no deliberate concealment of this 2008 Letter from the defendant.  This line of defence fails.

35.  In any case, I cannot see any prejudice caused to the defendant.  Failing to state the assessed waiver fee in any of the Licenses was irrelevant because the liability to pay has already been fixed by Clauses 3(a), 3(c) and 5(c).  The “concealment” of that letter for 2 days did not prevent the defendant from terminating the 6^th Licence and he in fact did so within 5 days of its receipt.  The termination date coincided with the contractual expiry date of the 6^th Licence.

(5)     The Abandonment Issue

36.  The defendant claims that he has abandoned the Application and hence is not obliged to pay the waiver fee.  He is even entitled to return of the waiver fee deposit held in the hands of the plaintiff. 

37.  As pointed out by Mr Lee, counsel for the plaintiff, this issue was not pleaded but was only referred to in paragraph 5 of the defendant’s witness statement.  There was no mention in any of the letters from the defendant to the plaintiff to show that the defendant had abandoned the Application.  PW1 was not cross-examined on this issue either.

38.  The defendant, on the other hand, claims that he told the plaintiff over the phone that the assessed waiver fees were too high and he could not afford it; he wished to abandon the Application.  PW1 then told him that the waiver fee deposit would be refunded to him.

39.  One should approach this issue with common sense.  The defendant did state in his Surrender Agreement that he decided to suspend running of his business and gave notice of termination of the Licence. Even the plaintiff’s letter dated 12 June 2008 showed that the plaintiff understood the defendant as having abandoned the Application.  I find that to all intent and purposes, the defendant did make the remarks stated in the preceding paragraph and abandoned the Application.

40.  However, I do not accept that PW1 has told the defendant that the waiver fee deposit would be refunded to him.  Faced with a breach of government lease and potential liability for the waiver fee, I cannot believe that the plaintiff would readily promise to release the waiver fee deposit to the defendant even before recovery of possession.

41.  The abandonment, however, does not assist the defendant.  At best it only took effect on 14 May 2008.  Before that, the Application was launched and processed by the Government.  A determination by the Government was reached with a demand note issued.  Liability of the plaintiff for the waiver fee was confirmed. The defendant remained in occupation for the full term of the 6^th Licence, continuing to breach the government lease.  It is against common sense that by simply being uncooperative and disagreeing to any assessment by the Government or abandoning the Application, the defendant could enjoy the breach at no cost.  If he were not liable under Clause 3(a) or 5(c), he would still be liable to indemnify the plaintiff under Clause 3(c).  I cannot see how the defendant can escape from liability.

42.  Not only these.  The defendant’s solicitors wrote directly to DLO “to object to [DLO’s] recent assessment of waiver fee for the past 5 years”.  The solicitors stated:

“Our client shall cease to use and occupy such portion upon expiration of this month. It would be unfair for our client to bear such substantial amount of waiver fee so lately assessed by your department after lapse of about 5 years. Please let us know how the waiver fee was assessed and whether the owner has ever objected to your said assessment and on what basis the owner objects and the method of calculation of the waiver fee which the owner counter-proposes.”

43.  If the defendant thought that he was not liable to pay, one wonders why he needed to issue this letter.  The irresistible inference is that he knew he was liable anyhow and it was only a matter of quantum.  The letter was an attempt to find information so as to persuade the DLO to reduce the amount if possible.

44.  I hold that though the defendant had abandoned the Application, he remained liable to pay.

LIABILITY

45.  I find for the plaintiff on the question of liability.  All lines of defence fail.  The counterclaim for return of the waiver fee deposit falls together.

QUANTUM

46.  There was no dispute on quantum until the defendant was cross-examined as to the amount of waiver fee deposit he had already paid the plaintiff.  Paragraph 6 of his witness statement states a figure of $1,081,767.50 but he could not explain how he computed that sum. 

47.  On the other hand, PW1’s evidence for the plaintiff was that the defendant has paid the deposit of $18,000 per month x 59 months representing the full licence period; that amounted to $1,062,000. 

48.  There being no reliable rebuttal evidence from the defendant, I accept the evidence of the plaintiff.  It is consistent with the concession in Mr Lau’s opening address that all quantum claimed as prayed for in the Statement of Claim is not in dispute, including the fact that the defendant has failed to pay the waiver fee deposit for the last 2 months of the licence period.

CONCLUSION

49.  I hold that pursuant to Clauses 3(a) and 5(c) of the Licences, the defendant is liable to reimburse the plaintiff the waiver fee imposed by the Government, subject to deduction of the waiver fee deposit held by the plaintiff.  All other heads of claim are not in dispute. The defendant should pay the plaintiff $1,263,585.40 as prayed for in the Statement of Claim.  The counterclaim is dismissed.

50.  I make an order nisi that:

(i)      $1,242,126.40 (i.e. the total sum less interest already charged) shall bear interest at the rate of 2% above the best lending rate of the Hong Kong and Shanghai Banking Corporation Limited (such rate should be spelt out in the judgment) from 1 July 2008 to the date of judgment and thereafter at judgment rate until payment; and

(ii)     costs should follow the event and be borne by the defendant.

51.  Any application for variation should be taken out by summons within 14 days from the date of this judgment, to be heard on 14 October 2010.

52.  Costs shall be assessed summarily on 14 October 2010.  The party seeking costs shall file and serve its/his costs statement by 30 September 2010 and the other party shall file and serve his/its grounds in opposition within 7 days thereafter.  Assessment of the costs shall be done on the papers unless, of course, there is a summons for variation to be heard on 14 October 2010.