BEST HONOUR INVESTMENT & DEVELOPMENT LTD v. BEST SONIC LTD

HCA 478/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 478 OF 2006

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J U D G M E N T

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I.     INTRODUCTION

1.  Best Honour leased Yuen Long premises to Best Sonic for 2 years (ending on 4 March 2006) by a tenancy agreement dated 3 March 2004.  On 24 August 2005 Best Honour gave Best Sonic notice to quit on expiry of the lease.  But Best Sonic refused to move out.  It has instead continued in occupation.  Since February 2006 it has also refused to pay rent, rates or management fees.

2.  On 8 May 2006 the Master granted Best Honour summary judgment against Best Sonic.  By the judgment Best Honour obtained vacant possession of the premises as well as arrears of rent, rates and other fees.  The Master also ordered that Best Sonic pay mesne profits and interest to Best Honour.

3.  Best Sonic now appeals against the Master’s order.  It denies that this is a matter for summary judgment.

II.      BACKGROUND

4.  Best Sonic first leased the premises in 1994 from Ruby Way Limited, Best Honour’s predecessor-in-title.  Ruby Way renewed the lease on several occasions.  Since 2004 Best Sonic has sub-let the premises to New Dragon Bird Association Ltd.

5.  By letter dated 29 June 2002 Ruby Way gave Best Sonic an option to renew the subsisting lease for 1 year to 4 March 2005 and a further option to renew for another year thereafter to 4 March 2006.  The letter stated that under the 1st option rent would rise to no more than 15% of what it was in 2002.  Under the 2nd option, rent would rise to no more than 20% of its level in 2002.

6.  On 16 October 2002 Ruby Way assigned the premises to Best Honour subject to Best Sonic’s tenancy.

7.  According to Best Sonic, before the assignment, Ruby Way told Best Sonic that “the tenancy period will extend to March 2008 with increment of rent of no more than 20%”.  Best Sonic further claims to have been told by Ruby Way that the assignment was “subject to such assurance and undertaking” by Ruby Way to Best Sonic.

8.  Best Sonic alleges that, in reliance on what Ruby Way said, Best Sonic undertook to sub-let the premises to New Dragon Bird until March 2008.  Best Sonic claims that, on the strength of Best Sonic’s undertaking, New Dragon Bird spent $6 million to renovate the premises.

9.  In these circumstances, Best Sonic argues that Best Honour is estopped from claiming possession.  Best Sonic also contends that Best Honour must renew Best Sonic’s tenancy.

10.  Best Honour disclaims any knowledge of Ruby Way’s alleged representation to Best Sonic.

III.     DISCUSSION

11.  In my view, the Master rightly granted summary judgment.  There is no substance to Best Sonic’s alleged defence.

12.  Assume that Ruby Way made the representation alleged.  At best (if at all), such representation merely gives Best Sonic a personal right of action against Ruby Way.  The representation creates no personal or property right which can be asserted against Best Honour.

13.  Ruby Way’s oral representation does not create any material legal or equitable interest in land. 

14.  By Conveyancing and Property Ordinance (Cap.219) (CPO) ss.3, 5 and 6 all interests in land created orally and not evidenced by writing take effect solely as interests at will.  This would be so whether or not consideration has been given for the interest asserted.  The occupier claiming a legal entitlement based on a parol interest may thus be evicted from the land at any time by a titleholder.

15.  It is true that CPO s.6(2) allows the creation of parol leases for terms not exceeding 3 years.  But such leases must take effect in possession.

16.  That is plainly not the interest being asserted by Best Sonic.  A lease “takes effect in possession” if it gives a present right to possession.  A lease that will commence in the future would not fall under CPO s.6(2).  The allegation here is that in October 2002 Ruby Way simply undertook that, in the future, Best Sonic would be entitled to an extension of the 2002 or later leases up to March 2008.  That assurance by Ruby Way does not even amount to a lease.

17.  Nor can Best Sonic assert any equitable interest.

18.  CPO s.5(2) exempts resulting and constructive trusts from the operation of the rule that equitable interests in land can only be created (or disposed of) in writing.  But it is hard to see how the alleged representation by Ruby Way can give rise to a trust of anything.  All that Ruby Way purportedly said to Best Sonic was that, despite the assignment to Best Honour, Best Sonic could (if it wished) continue as tenant until March 2008.  There is nothing that could be the subject of a trust, whether resulting, constructive or otherwise.

19.  On the level of general principle, Best Honour did not make any representation.  It cannot be said that Best Honour has acted in a way which is unconscionable such that a constructive trust of some sort should (if possible) be imposed.

20.  I note that CPO s.3(2) exempts the doctrine of part performance from the requirement that actions concerning the disposition of land must be based on writing.  There can be no suggestion here that the doctrine of part performance applies.  Best Sonic in reality has no case that there has been a legal or equitable lease of the premises until March 2008.  Best Sonic is merely asserting that there was an assurance from Ruby Way that it could renew its lease for the premises until 2008.

21.  Best Sonic couches its argument in terms of an estoppel or acquiescence.  But it is hard to see how estoppel (whether proprietary, promissory or any other sort) could come into play.

22.  At a minimum for estoppel or acquiescence, Best Sonic needs to show that, although Best Honour knew relevant facts, Best Honour nonetheless represented to Best Sonic by words or conduct that Best Honour would not enforce its strict legal rights in the premises.

23.  What would be the set of relevant facts here?  Such set of facts must at least include Ruby Way’s representation to Best Honour.  However, there is no evidence that Best Honour was aware of the alleged representation by Ruby Way.

24.  The most that can be asserted is that Best Honour was aware of the sub-letting by Best Sonic to New Dragon Bird.  Best Honour may conceivably also have known that New Dragon Bird spent money on improving the premises.  But mere knowledge of those 2 facts would not have suggested to Best Honour that Ruby Way had assured Best Sonic’s tenancy until 2008 and New Dragon Bird was acting on some corresponding undertaking by Best Sonic.

25.  Again, it cannot be said that Best Honour has acted in some way which is unconscionable and which triggers the doctrine of estoppel and acquiescence.  Mere toleration by Best Honour in the past of the sub-letting to New Dragon Bird is insufficient cause.  There is no reason for equity to intervene so as to preclude Best Honour from exercising its strict rights in the premises.

26.  In whatever way one analyses the facts, it is impossible to envisage Best Sonic holding any equity or right against Best Honour for the renewal of the expired tenancy.

27.  Finally, regardless of the position on Best Sonic’s right to renewal of the tenancy, Best Sonic must surely pay arrears in rents, rates and management fees as well as mesne profits or damages for any wrongful occupation.  As far as I can see, Best Sonic has no defence at all to Best Honour’s claims for unpaid sums and damages.

IV.     CONCLUSION

28.  The appeal is dismissed.  I shall hear counsel on costs.