HARVEST REGENT DEVELOPMENT LTD v. WING HUNG HAY CO LTD

HCA746/2006
& HCA1047/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.746 OF 2006

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BETWEEN

 

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AND

ACTION NO.1047 OF 2006

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D E C I S I O N

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1. This is an appeal against a decision of Master Ho made on 31 July 2006.  There were originally two summonses before the Master.  Both arose out of a landlord and tenant dispute.  The premises in question is a restaurant in Kowloon.  In one summons the landlord (Wing Hung Hay Co. Ltd) sought an Order 14 judgment on the grounds of the tenant’s (Harvest Regent Development Limited) arrears of rent.  In the second summons the landlord was the defendant and was seeking an order to strike out the tenant’s statement of claim in which the tenant alleged that an oral collateral agreement superceded the written terms of the lease agreement to which they were both parties.

2. Master Ho granted the Order 14 summons and gave summary judgment for forfeiture of the lease and arrears of rent of approximately $1.7 million.  He also struck out the tenant’s statement of claim alleging a collateral agreement.

3. Initially, the tenant filed notices of appeal against both decisions.  Subsequently however, the appeal against the Order 14 has been withdrawn.  Before me is the appeal against the striking out coupled with a new application to stay the execution of the Order 14 judgment if the appeal against the striking out succeeds.

APPEAL AGAINST STRIKING OUT

4. The history of the lease between the parties dates back to 1995.  Between 1995 and 2006 there had been renewals and variations of the terms relating to duration and rent.  The most recent lease was signed in June 2002 and provided for a letting up to July 2006 at a rent of $380,000 at the time of termination.

5. Each version of the lease since 1995 had contained, at clause 11, an “entire agreement clause” in the following terms :

“This Lease sets out the full agreement reached between the parties hereto and no other representations have been made or warranties given relating to the Lessor, the Lessee, the premises or the Building and if any such representation or warranty has been made, given or implied the same is hereby waived.”

6. In good time, before the expiration of the lease, the landlord offered the tenant a new tenancy on new terms.  A three year lease, with an option to renew, at a rent of $520,000 a month was offered.

7. The offer was refused.  The tenant then commenced these proceedings.  The substance of the tenant’s claim is that in or about May 2002, namely about one month before the most recent lease was signed, the parties entered into an oral collateral agreement.  The terms of the oral agreement were that the landlord would grant the tenant a new lease upon the expiration of the 2002 lease, namely in July 2006, and that the new rent would be no more than 15% higher than the old rent.  Accordingly, the ceiling on the new rent was to be $437,000 a month.

8. Master Ho struck out the statement of claim and dismissed the tenant’s action with costs.  The Master’s order cites all four grounds under Order 18 rule 19 namely that :

(a) it discloses no reasonable cause of action;

(b) it is scandalous, frivolous or vexatious;

(c) it may prejudice, embarrass or delay the fair trial of the action; or

(d) it is otherwise an abuse of the process of the Court.

9. The reality of the situation is that this is a case, and an appeal, which concerns ground (a).

10. I am satisfied that the Master was right to strike out the claim and accordingly I will dismiss this appeal.

11. No reasonable cause of action is disclosed because for two reasons the defendant is bound to succeed in its defence.  The first reason is the vagueness and uncertainty of the alleged collateral agreement.  The second is the existence of the entire agreement clause.  The first reason on its own would provide insufficient reason for the strike out.  However, the second reason, even on its own, does provide proper grounds for dismissing the action.  The addition of the first reason adds strength to the landlord’s summons.

(a) Vague and uncertain

12. The truth of the conversation in May 2002 is of course a question of fact which, taken on its own, would merit a trial.  However, accepting that the conversation did take place and that the tenant’s version of it is correct, as a binding agreement it is unsustainable.  The key problem is the lack of any term relating to duration of the new lease.  On the face of it, if the landlord did offer a new lease at a rent of $437,000 a month for a period of one month, the tenant could not complain.  Mr Kevin Hon, counsel for the tenant, was forced to submit that he relied on an implied term (which had not been pleaded) that the new agreement would be for three years.  He relied on the parties’ previous dealings to support his argument in favour of an unpleaded implied oral collateral term.  However, even this argument was flawed because the previous lease had been for four years, not three.

(b) Entire agreement clause

13. A significantly higher hurdle facing the tenant was the entire agreement clause which was signed just one month after the alleged collateral agreement.

14. In my judgment the clause is (i) unequivocal and (ii) the best evidence of the parties’ intentions at the material time.  Given also that (iii) it was signed very soon after the alleged oral agreement and (iv) it had featured in all versions of the lease since the first agreement in 1995, I think it presents the tenant with an insurmountable hurdle and the Master was right to recognize this.

15. Mr Paul Lam, counsel for the landlord, cites authorities which spell out the weight to be attached to such a clause.  For example : Lightman Jin Inntrepreneur Pub Company (GL) v. East Crown Limited [2000] 2 Lloyd’s Reports at p.614 :

“… such [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 (which in the absence of such clause might have effect as a collateral warranty) 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 … : it is denude what would otherwise constitute a collateral warranty of legal effect.”

And from the same case :

“The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty.  The entire agreement clause obviates the occasion for such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search.

… In my judgment that formula is sufficient, for it constitutes an agreement that the full contractual terms to which the parties agree to bind themselves are to be found in the agreement and nowhere else and that what might otherwise constitute a side agreement or collateral warranty shall be void of legal effect.  That can be the only purpose of the provision.”

16. The highwater mark of Mr Hon’s submission is that the intention of the parties when they made the collateral agreement is a question of fact to be determined by the trial judge.  In my judgment such a submission has no substance in light of the fact that one of the very purposes of clause 11 is to evidence the intentions of the parties at the material time.

STAY APPLICATION

17. Merely for the sake of completeness I add this.  Had the tenant been successful in its appeal against the Master’s strike out order I would have granted a stay on terms that all arrears of rents and the costs of the Order 14 summons be paid into court within 14 days.  In the event however such an order is unnecessary.

18. I dismiss Harvest Regent Development Ltd’s appeal with costs.