AVC PROPERTY DEVELOPMENT COMPANY LTD v. JOYFUL GRACE TRADING LTD AND ANOTHER

HCA 529/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 529 OF 2013

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I.  CLAIM

1.  The plaintiff (“AVC”) is the registered owner of premises known as Shops A, B, C and D on the Ground Floor of Paul Yee Mansion (“Building”), Nos 340, 342, 344 and 348 Jaffe Road and Nos 1, 3 ad 5 Marsh Road, Wanchai, Hong Kong (“Premises”).

2.  By a written tenancy agreement dated 12 September 2012 made between AVC as landlord and the 1^st defendant (“JG”) as tenant (“TA”), AVC let the Premises to JG for a term of two years at the monthly rent of $150,000 exclusive of rates, management fees and all outgoings. The following were inter alia express terms of the TA:

Section I	The monthly rent shall be payable in advance clear of all deductions on the 1st day of each calendar month throughout the term of the TA.
Section I and Third Schedule	JG would be granted a rent-free period of one month starting from 1 to 30 September 2012 (both days inclusive).
Fifth Schedule Part II clause 7	JG was fully aware that AVC was then carrying out repair works in the Premises. If for whatever reason AVCfailed to deliver up vacant possession of the Premises to JG on or before 1 September 2012, ie the lease commencement date, AVC shall be entitled to postpone the delivery of possession to a later date to be designated by AVC in a seven days’ prior written notice to JG (“Formal Notice”) provided that such later date shall not be later than 30 September 2012. Upon such postponement, the lease commencement date and all relevant datesof the term of the tenancyshall automatically be postponed accordingly.
Section I	JG agreed to use the Premises only for the purpose as set forth in clause 4 of Part II of the Fifth Schedule and not for the sale or provision of any other kind of goods service or other purpose whatsoever without the express permission of AVC in writing (which permission shall not be unreasonably withheld).
Section I and Fifth Schedule Part II clause 4	JG agreed to use the Premises only for retail purposes under the trade/business name of “ROY  SANITARY WARE” provided that JG shall obtain all permits and licences for the said purposes and “[for] the avoidance of doubt, no warranty whatsoever is given by [AVC] that the [Premises] are fit for use for any purposes intended by [JG], and in no event shall [JG] be permitted to terminate the [TA] on the ground that the [Premises] is not permissible to be used for any purposes intended by [JG]”.
Section III clause 2	JG’s obligations: to fit out the interior of the Premises in accordance with such plans and specifications as shall have been first submitted by JG to and approved in writing by AVC in good and proper workmanlike fashion.
Section XI clause 12	JG shall submit detailed exterior façade and signage design plans to AVC (3 sets of each plan) for review and approval by AVC, and if so required, shall obtain prior approval from the Buildings Department or any other relevant government department. AVC’s approval must be obtained prior to the commencement of work.
Section XI clause 15	JG shall upon submission of fitting out plans to AVC for approval pay AVC a non-refundable vetting fee of $15,000 for approving the said fitting-out plans. Additional charges may be charged against JG depending on the complexity of JG’s renovation work.
Fifth Schedule Part II clause 3	Plans of all the building, fitting out and E&M installations which JG wishes to do to be submitted in full detail by JG to AVC for approval in writing prior to the commencement of work.
Section VIII clause 1	If the rent and/or the management fee and/or the rates payable hereunder or any part thereof shall be in arrears for 15 days after the same shall have become payable (whether formally demanded or not) or if there shall be any breach or non-performance of any of the stipulations conditions or agreements therein contained, it shall be lawful for AVC at any time thereafter to re-enter on and upon the Premises or any part thereof in the name of the whole and thereupon the TA shall absolutely determine but without prejudice to any right of action by AVC in respect of any outstanding breach or non-observance or non-performance by JG of any of the terms of the TA.
Section VIII clause 2	In the event of default in payment of rent, rates, management fees or any monies payable by JG under the TA for a period of 14 days from the date when the payment would be due (whether formally demanded or not), JG shall pay AVC on demand daily interest on such sums outstanding at the monthly rate of 3% calculated from the due date on which the same shall be due for payment until the date of payment as liquidated damages and not as penalty.
Section XI clause 11	“The [Premises] are to be let and handed over to [JG] in a “Bare-shell” condition with the following [AVC’s] fixtures and fittings: i) Six (6) sets of metal roller shutters; ii) One (1) Stainless Steel door to back yard; iii) One (1) Stainless Steel door to light well [JG] hereby declares and confirms that he has duly inspected the Premises and is fully satisfied with and accepts in all respects the current state and condition of the Premises and the fixtures and finishes (if any) therein. The parties hereto agree that the Premises will be delivered to [JG] by [AVC] in the same state, condition and repair as at date of the signing of [the TA] and no warranty or representation whatsoever has been given or is made by [AVC] or its agents regarding the user of the Premises and/or the state and condition thereof or of the Building and in particular, but without limitation, no warranty or representation is made by [AVC] or its agents regarding: (a) the legality quality or fitness of the fittings and finishes or the installation and appliances (if any) in the Premises and/or the Building; (b) the state and condition of the Premises or Building and the user thereof; and (c) the composition of the Building.

3.  The “Property Handover Form”, which described the condition of the Premises as at 11 September 2012 as inter alia
“1) Vacant possession in “Bare Shell” condition”, was signed by AVC and JG to “confirm that the above represent a true and accurate records of the condition of the [Premises]” (“Handover Form”).

4.  JG paid a total sum of $948,311.40 to AVC for rental and renovation deposits, rent, management fees and rates in respect of the Premises (“Paid Sum”).  They did not pay rent since 1 November 2012 and management fees and rates since September 2012.  AVC’s solicitors wrote to JG and the 2^nd defendant on 9 January 2013 (“9/1/13 Letters”) to demand payment of the then outstanding arrears of $473,254.56 as follows:

Outstanding payment	HK$
Rent from 1/2/13 to 30/4/13 at $150,000 per month	450,000
Management fees from 1/2/13 to 30/4/13 at $2,860 per month	8,680
Overdue interest from 1/2/13 to 2/4/13	14,674.56
Total:	_______________ 473,254.56

5.  On 11 March 2013, JG’s solicitors wrote to AVC alleging that (a) the removal of a set of staircase (“Staircase”) between the Premises and the 1^st floor of the Building shown on the alleged “original building plan” (“Building Plan”) but not shown on the floor plan annexed to the TA (“Floor Plan”) (“Staircase Removal”) without approval of the Building Authority (“BA”) constituted illegal/unauthorised structural alterations such that the Premises would not be fit for its intended purpose or for occupation at all and which might also trigger re-entry by the government, and (b) the Staircase Removal in breach of the terms of the deed of mutual covenant of the Building (“DMC”) and the TA[1] amounted to fundamental/repudiatory breach of the TA.  Such letter went on to say that:

“Further or in the alternative, in having unequivocally represented to [JG] prior to the execution of the [TA] that the Premises were free from illegal structures as well as illegal and/or improper structural alterations, [AVC] has committed fraudulent misrepresentation, as such, the [TA] shall be void ab initio.” (my emphasis)

JG also demanded compensation for all loss and damages they suffered as a result and asked for refund of the Paid Sum.

6.  On 14 March 2013, AVC’s solicitors replied to refute such allegations, and to demand JG to pay the outstanding rent, rates and management fees (“14/3/13 Letter”). On 18 March 2013, JG’s solicitors wrote to deny AVC’s claims.

7.  On 2 April 2013, AVC commenced the present action against inter alia JG claiming for (a) vacant possession of the Premises,(b) payment of outstanding rent and management fees with overdue interest in the sum of $473,254.56, (c) mesne profits and management fees from 1 May 2013 until delivery of vacant possession, (d) rates for the Premises from 1 April 2013 until delivery of vacant possession, (e) damages for JG’s breach of the TA, and (f) interest and costs.

8.  After the commencement of the present action, JG surrendered possession of the Premises to AVC.  On 29 May 2013, JG’s solicitors wrote to deliver the keys of the Premises to AVC’s solicitors, and to confirm that “[vacant] possession of the Premises has thus been delivered to [AVC]”.  JG did not pay rent since 1 February 2013, and there was no dispute over the quantum of outstanding rent from 1 February to 29 May 2013 and overdue interest thereon as set out in paragraph 22(a) below.

II.   JG’S DEFENCE AND COUNTERCLAIM

9.  JG in their Defence and Counterclaim filed on 18 April 2013 (“D&C”) denied they took possession of the Premises from AVC on 11 September 2012. They claimed AVC delayed in handing over possession because of the need to remove/demolish a canopy protruding “from the Premises [“Canopy”] in response to the request of the Owners’ Incorporation of [the Building] [“IO”]” (“Canopy Removal”).  Such works, which took more than 40 days, were only completed in December 2012.  When the Writ of Summons was issued, AVC had not issued any Formal Notice to JG on (a) whether and when JG could obtain possession of the Premises, (b) the extent to which the commencement of the leasing of the Premises to JG would be extended and/or (c) how the other relevant dates in the TA would be adjusted/postponed. AVC’s failure to issue the Formal Notice or notify JG in writing of the above matters on/before 30 September 2012 amounted to fundamental breach and/or frustration of the TA, and JG was discharged from performance of the TA (“Formal Notice Defence”).  Since the rent-free period had yet to expire, consideration for JG’s payment of the Paid Sum under the TA had wholly failed.

10.  Further and/or alternatively, JG claimed that any tenancy arrangements over the Premises between AVC and JG (of which the TA was part) were void ab initio for fraudulent misrepresentation by AVC. When JG inspected the Premises, it was in a dilapidated state and they would not have considered renting such premises if they were not near a comparatively prosperous part of Causeway Bay or near other shops selling construction material, renovation equipment or household facilities (“Location Reason”).  At that time, AVC told JG they could not deliver vacant possession of the Premises “until further notice pending certain reparatory works to the Premises and …… pending [AVC]’s removal of [the Canopy] in compliance with the request of the [IO]”, so JG became worried about the condition of the Premises and about whether or not there were other unauthorised/illegal structures or alterations.

11.  JG claimed that to induce them to lease the Premises on the terms set out in the TA, AVC represented to them inter alia that (a) apart from the Canopy the Premises were free from any other unauthorised/ illegal structure or alteration, (b) apart from the Canopy there had never been any breach of the DMC or relevant government lease (“Govt Lease”), and (c) there would not be any fire, structural or other hazard whatsoever (“Hazards”) in the Premises (“Representations”). AVC further assured JG that (i) the Representations could be regarded as part of the provisions governing AVC’s leasing of the Premises to JG and (ii) any provisions in the TA that provided for JG’s satisfaction with and acceptance of any condition of the Premises would not be applicable to the Representations (“Assurances”). Hence, the actual tenancy arrangements between AVC and JG that governed the leasing of the Premises (“Actual TA”) were at all material times made partly orally (evidenced by the Representations/Assurances) and partly in writing (evidenced by the TA) (“Actual TA Defence”).

12.  JG claimed AVC knew or ought to have known (and was estopped from denying they were aware) that JG relied on the Representations in entering into the Actual TA. Further, by reason of the Representations/Assurances, AVC could not rely or seek to rely on any provision of the Actual TA that provided for JG’s satisfaction with and/or acceptance of the condition of the Premises otherwise the contra proferentum principle shall apply to AVC in respect of such provisions. Still further, terms to the effect that the Premises were fit for occupation and free from the Hazards would be implied to give efficacy to the Actual TA (“Implied Terms Defence”).

13.  In view of the Floor Plan, JG claimed they were unable to discover the Staircase Removal by visual inspection of the Premises, and it would have been unreasonable to expect them to do so.  They later discovered the Representations were untrue in that the Staircase Removal without BA’s approval amounted to unauthorised/illegal alterations to the Premises, and hence AVC made the Representations fraudulently either well knowing they were false or recklessly and not caring whether they were true or false (“Misrepresentation Defence”).  Upon such discovery, JG’s legal advisors wrote to AVC to inter alia rescind and repudiate the Actual TA.

14.  Further and/or alternatively, JG averred that due to the Staircase Removal, (a) at all material times the Premises were unfit for their intended purpose and/or for occupation, and (b) the removal of the Staircase (constructed for common use in the Building) was in breach of and rendered JG as tenant to be in material breach of the DMC, and(c) the Staircase removal also caused JG to be in breach of the Actual TA or otherwise exposed to unacceptable or unreasonable risks thereunder (“Quiet Enjoyment Defence”).

15.  JG claimed that under (b) above, the Staircase Removal was in breach of the following provisions of the DMC with the following consequences:

Clauses 2 and 9(c)	Lawful visitors to or occupants of the Building were/are at all times deprived of the use of the Staircase.
Clause 9(e)	Such part of the Building’s facilities, ie the Staircase, which was intended for common use had been damaged.
Clause 9(r)	It was and amounted to structural alterations to the relevant part of the Building.
Clause 9(s)	It would cause or result in any/all insurance against fire to become void or voidable or bring about an increase in premium as it would deprive occupants of and visitors to the Building of an escape route in case of fire.

Further, JG claimed that under (c) above the Staircase Removal was in breach of the following provisions of the TA with the following consequences:

Section III clause 8	It brought about or were prone to result in defective or damaged condition of the Premises, and as a result, the risk of causing or resulting in damage/injury as particularised in this clause would be substantively higher, thereby exposing JG to unacceptable and unreasonable financial risks or other burden.
Section V clause 10	It might amount to breaches of the Govt Lease.
Section V clause 20	It would cause or result in any or all insurance against fire or third party risks becoming void or voidable.
Section IV clause 1	JG would be deprived of quiet enjoyment of the Premises.

16.  JG averred that when they confronted AVC on the Staircase Removal, AVC admitted the Premises were previously leased to a hot-pot restaurant which could not obtain any proper restaurant licence because of the Staircase Removal.

17.  JG claimed that subsequently due to loss of appropriate timing for selling toilet utensils, sanitary wares and related products (“Goods”), they wanted to operate a restaurant/café and pub (“Food Business”) at the Premises, but in breach of Section I of the TA AVC repeatedly and unreasonably refused to issue written approval for change of the user of the Premises (because they knew no liquor licence would be granted with the Staircase Removal) (“Refusal of Change of User Defence”). JG claimed the Staircase Removal also rendered the Premises unfit for occupation or for any purpose at all.

18.  JG contended that AVC committed fundamental breaches of the Actual TA, and induced JG to be in breach of the Actual TA, the DMC and possibly the Govt Lease, and further and/or alternatively, the Staircase Removal also amounted to breach of the DMC and possibly the Govt Lease, so the Actual TA was not enforceable against JG, and AVC should refund the Paid Sum to JG and not demand/receive any or any further payment of rent, rates, management fees or any other payment.  JG further claimed they suffered loss and damages in that (a) they had been deprived of use of the Premises and of the profits they could have earned in/through using the Premises, (b) notwithstanding the Staircase Removal and the failure of consideration for the Paid Sum, AVC unreasonably requested JG to make such payments, and (c) JG had been exposed to unacceptable and unreasonable financial risks or other burden.  JG therefore counterclaimed against AVC for rescission and repudiation of the Actual TA, refund of the Paid Sum, loss and damages, interest and costs.

III.  SUMMONS AND APPEAL

19.  On 10 May 2013, AVC filed a summons (“Summons”) seeking inter alia :

(a) summary judgment against JG under Order 14 rule 1 of the Rules of the High Court (“RHC”) for the reliefs sought in the Statement of Claim;

(b) an order to strike out the D&C pursuant to Order 18 rule 19(1)(b), (c) and (d) of the RHC;

(c) further or alternatively, an order for interim payment under Order 29 rule 4 of the RHC for outstanding rent/mesne profits and management fees in respect of the Premises together with overdue interest.

20.  AVC filed the 1^st and 3^rd affirmations of AVC’s director Ho Shek Tim (“Ho”) respectively dated 10 May and 24 July 2013 in support of the Summons (“Ho 1^st and 3^rd Affs”). On 5 July 2013, JG filed the 1^st affirmation of Yu Sau Lai (“Yu”), an executive director of a listed company Chinese Food and Beverage Group Limited (“CF”) and a director of Good Capital Investment Limited (CF’s wholly owned subsidiary and JG’s current parent company, “GC”), in opposition (“Yu 1^st Aff”).

21.  The Summons came before Master S Kwang for hearing on 2 and 3 September 2013 (“Master Hearing”).  It transpired from the transcript of the learned master’s oral decision delivered at the Master Hearing (“Transcript”) that JG’s counsel did not pursue the Formal Notice, Actual TA, Misrepresentation, Implied Terms, Quiet Enjoyment and Refusal of Change of User Defences, but relied on the following three defences to oppose the application for summary judgment under the Summons:

(a) the TA was unenforceable since it was tainted with illegality due to illegal structures/alterations inside the Premises (“Illegality Defence”);

(b) promissory estoppel based on the following representations and promises made to JG for settlement of three months’ outstanding rent, management fees and rates in respect of the Premises (“Arrears”) upon acquisition of JG by GC:

(i) the Premises were free of illegal structures;

(ii) the Premises were fit for obtaining a liquor licence and operating a Food Business;

(iii) AVC consented to a change of the user of the Premises from a showroom for the Goods to a Food Business

(“Promissory Estoppel Defence”);[2]

(c)     “…… [AVC] has made promises in exchange of [JG’s] promise to procure acquisition of [JG] by [GC] from [WG] to secure immediate receipt of [the Arrears] secured for settlement of the complaints by [JG] in relation to [AVC’s] failure to give quiet enjoyment of the [Premises] and vacant possession to the period from October 2012 to January 2013”, and “…… on that basis, representation and promises supported by new considerations amounting to a collateral contract in its own right” (“Post-Collateral Contract Defence”).[3]

22.  The learned master granted the following judgment in favour of AVC against JG (“Judgment”):

(a) JG do pay to AVC (i) the sum of $590,322.58 being outstanding rent and mesne profits together with the sum of $43,791.78 being interest accrued on the outstanding rent from 1 February 2013 to 29 May 2013 and (ii) interest on the sum of $590,322.58 at 3% per month from 30 May to 3 September 2013 and thereafter at judgment rate until full payment;

(b) interlocutory judgment for damages for breach of the TA arising out of non-payment of rent and forfeiture of lease against JG to be assessed;

(c) costs of the Summons to be paid by JG to AVC with certificate for counsel.

23.  The learned master considered AVC’s claims for management fees and rates were not amenable to summary judgment since there was no express plea that they were due and payable to AVC. Unconditional leave was therefore granted to JG to defend these claims.

24.  On 13 September 2013, JG filed Notice of Appeal against the Judgment, and sought an order that they be granted unconditional leave to defend AVC’s claims being the subject of the Judgment, and that costs of the appeal and below be to them in any event (“Appeal”). The Appeal came before me for hearing on 2 December 2013 (“Hearing”).

25.  According to the written submissions of Mr Chan (with him Mr Ma), counsel for JG for the Hearing but not for the Master Hearing, JG only relied on the Change of User Representation Defence,[4] the Revised Promissory Estoppel Defence,[5] and the Post-Collateral Contract Defence[6] (“Three Defences”), and would abandon the other defences pleaded in the D&C, referred to in the Yu 1^st Aff or raised at the Master Hearing (ie the Formal Notice, Actual TA, Misrepresentation, Implied Terms, Quiet Enjoyment, Refusal of Change of User and Illegality Defences). But Mr Chan still referred to the same factual underpinning for such abandoned defences as alleged by JG to support the Three Defences, so it is necessary for me to turn to the Yu 1^st Aff.

26.  Before I do so, I pause to note that Mr Chan’s written submissions were peppered with observations that certain factual allegations by Yu/JG “seemed indisputable”, “is undisputed”, “should be undisputed” or “should be indisputable”, but some of these factual allegations were actually disputed or not admitted by AVC in Ho’s 1^st and 3^rd Affs. In the end, Mr Chan conceded that apart from facts/matters actually admitted by AVC in their pleadings or in the Ho 1^st and 3^rd Affs, such observations amounted to no more than his submissions that JG’s assertions were credible and believable.

IV.  APPEAL FROM MASTER

27.  It is trite that an appeal from the master to judge in chambers is dealt with by an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time.  The judge will give the weight it deserves to the previous decision of the master; but he is in no way bound by it.[7]

V.  LEGAL PRINCIPLES: SUMMARY JUDGMENT

28.  Both Mr Chan and Mr Chong, counsel for JG, had no essential quarrel over the applicable legal principles.  A plaintiff may invoke the procedure under Order 14 of the RHC where there is no valid defence to his claim or otherwise a triable issue.  The rationale is set out in Hong Kong Civil Procedure 2014:[8]

“ …… The underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in case in which the defendant clearly has no defence to the plaintiff's claim: Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225. Order 14 proceedings for summary judgment when there is no defence to a claim are an important feature of the legal process. It enables plaintiffs in cases where there is no defence to obtain expeditious summary judgment to avoid unnecessary delay. When applied for, it is for the defendant to show that there is a triable issue or an arguable defence if he is to be allowed his day in court. To deny him his day in court, if he shows a triable issue or an arguable defence, is indeed a fearful injustice. On the other hand, if he has no defence and he obtains leave to defence, equally, there is injustice to the plaintiff” (per Mortimer JA in Manciple Ltd v Chan On Man [1995] 3 HKC 459 at 466). The machinery of O.14 works on the basis that if the plaintiff's application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed.”

29.  In Ng Shou Chun v Hung Chun San,[9] Godfrey J noted it was not appropriate to embark on a mini‑trial of the action on affidavit evidence.  The court should ask itself the question whether what the defendant says is credible or believable.  If so, he must have leave to defend; if not, the plaintiff is entitled to summary judgment.

30.  Hong Kong Civil Procedure 2014 goes on to say that: [10]

“ ‘In considering whether there are triable issues the Court will, of course, not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence. But what the Court should not do is to conduct a mini‑trial on complicated factual issues.’ per Cheung JA in Paul Y Management Ltd v Eternal Unity Development Ltd [2008] HKEC 1359 at para 19.

……

On the other hand, a complete defence need not be shown. The defence set up need only show that there is a triable issue or question or that for other reason there ought to be a trial; and leave to defend ought to be given unless there is clearly no defence in law such as could have been raised on the former demurrer to the plea and no possibility of a real defence on the question of fact (Jacobs v Booth’s Distillery Co (1901) 85 L T 262, HL; Runnacles v Mesquita (1876) 1 QBD 416). Where there are unexplained features of both the claim and the defence which are disturbing because they bear the appearance of falsity and disreputable business dealings and questionable conduct, the court should not make tentative assessments of the respective chances of success of the parties or the relative strengths of their good and bad faith, and should not on such an examination grant the defendant conditional leave to defend, but should give unconditional leave to defend (Extraktionstechnik Gesellschaft für Anlagenbau Gmbh v Oskar (1984) 128 S J 417; (1984) L S Gaz 1362, CA applied in Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262).”

VI.  LEGAL PRINCIPLES: PROMISSORY ESTOPPEL

31.  Chitty on Contracts 31^st ed Vol 1 states as follows:

“For the equitable doctrine to operate there must be a legal relationship giving rise to rights and duties between the parties; a promise or a representation by one party that he will not enforce against the other his strict legal rights arising out of that relationship; an intention on the part of the former party that the latter will rely on the representation; and such reliance by the latter party. Even if these requirements are satisfied, the operation of the doctrine may be excluded if it is, nevertheless, not “inequitable” for the first party to go back on his promise. The doctrine most commonly applies to promises not to enforce contractual rights, but it also extends to certain other relationships. ……” (para 3-086 at pp 347-348)

“The promise or representation must be “clear” or “unequivocal,” or “precise and unambiguous” …… There is some support for the view that the promise must have the same degree of certainty as would be needed to give it contractual effect if it were supported by consideration. Thus if the statement could not have had contractual force because it was too vague, or if it was insufficiently precise to amount to an offer, or if it did not amount to an unqualified acceptance, it will not bring the equitable doctrine into operation.” (para 3-090 at pp 349-350)

“There is sometimes said to be a further requirement, namely that the promise must have suffered “detriment” by acting in reliance on the promise. …… It is enough if the promisee has altered his position in reliance on the promisee so that it would be inequitable to allow the promisor to act inconsistently with it: for example, if the promisee has foreborne from taking steps that he would otherwise have taken to safeguard his legal position ……; or if he has performed, or made efforts to perform the altered obligation ……” (para 3-094 at p 354)

“It must be “inequitable” for the promisor to go back on the promise. This requirement cannot be defined with anything approaching precision, but the underlying idea is that the promisee must have acted in reliance on the promise in one of the ways just described, so that he can no longer be restored to the position in which he was before he took such action. If the promisee can be restored to that position, it will not be inequitable for the promisor to go back on the promise. …… The conduct of the promise in obtaining the promise may also be relevant to the issue whether the promisor has acted “inequitably” in going back on it.” (para 3-095 at pp 354-355)

VII.  YU 1^ST AFF

32.  Yu explained that originally JG was a wholly-owned subsidiary of Wide Graceful Holdings Limited (“WG”) which in turn was a subsidiary of a listed company China Eco-Farming Limited. When JG signed the TA with AVC in September 2012, GC had not acquired JG as yet. Yu claimed that dispute arose between JG and AVC, and “[after] a long history of disputes [AVC] persuaded [GC] to purchase [JG]”, and “[GC] did this to help [AVC] out of the dispute”.[11]

33.  Yu claimed it was originally intended that the Premises would be used as a showroom for the Goods.  JG wanted to open a showroom in the area because of the Location Reason. They hoped customers and passers-by looking for construction/renovation materials would be attracted to look at the Goods on display at the showroom and would place orders with them.

34.  It was said that at the time when the TA was signed, the Premises were vacant but in a dilapidated state. Ho informed JG that AVC could not deliver vacant possession as yet pending certain “reparatory works” to the Premises and the Canopy Removal at the IO’s request. JG was anxious and worried about the condition of the Premises since they were not sure when AVC would be able to complete the aforesaid works. JG was also concerned that even if AVC were able to restore the condition of the Premises and deliver possession to them (a) there would be scaffolding and construction workers/materials on the ground floor area outside the Premises for the Canopy Removal that would potentially hinder if not actually block access to the Premises, and (b) the works would generate so much noise/dust that passers-by would hardly be able to notice the showroom let alone be attracted to have a look at the Goods inside (which would seriously affect the showroom’s business).  Further, given the need for the Canopy Removal, JG was naturally concerned as to whether or not there were other unauthorised/illegal structures or alterations to the Premises, and they were keen to avoid any potential disruption to business after the showroom opened.

35.  JG informed AVC’s Ho of their intention to use the Premises as a showroom, and expressed their above concerns.[12]  In order to induce JG to enter into the TA, AVC’s Ho made the Representations to JG. Relying on the Representations, JG entered into the Actual TA, which consisted of both the written TA (that did not reflect the whole tenancy arrangements as between AVC and JG) and the oral Representations (that supplemented the TA). Since AVC intentionally made the Representations knowing that JG would rely upon them in entering into the TA, it would be unfair if AVC wouldnow deny they had made the Representations and/orassert JG could not rely on them.

36.  Yu claimed there was an understanding between JG and AVC that the Premises would be fit for purpose and free from the Hazards.  Yu was told by WG’s Raymond Lam (“Lam”) and verily believed that when JG entered into TA, “there is an implied term to the tenancy arrangement between [JG] and [AVC] and a collateral to the [TA] that the Premises would be fit for purpose and that the Premises would be free from [the Hazards]” (“Pre-Collateral Contract”).

37.  Yu claimed the problem with the dilapidated state of the Premises persisted and the Canopy Removal works obstructed the showroom business. Yu was informed by WG’s Lam that the Canopy Removal took more than three months (ie until December 2012) to complete, hence the Premises were unfit for use as a showroom at all.

38.  In the three months following the signing of the TA, JG protested to AVC and refused to pay rent. As a result of negotiations between JG and AVC, AVC’s Ho came up with the idea that WG should sell JG to GC. Yu said that in/about December 2012 Ho on AVC’s behalf approached GC to persuade them to buy JG from WG so that GC through JG would take up the remainder of the tenancy of the Premises and pay outstanding/future rent to AVC.

39.  Between December 2012 and January 2013, Ho went to Yu’s office in Wanchai, Hong Kong and repeatedly telephoned her to persuade GC to take up the lease of the Premises by buying JG’s shares from WG “to salvage [AVC] out of its dispute with [JG]”. During such negotiations, Yu made known to Ho that GC did not intend to continue JG’s then showroom business for the Goods, and instead intended to run a Food Business at the Premises. Yu did not want the then problems with the tenancy arrangements over the Premises to occur again as customers would not want to eat at a place with construction work outside.  Ho told Yu that if GC would pay the Arrears, AVC would warrant the Premises to be suitable for “all purposes that [Yu] can think of, including operating a restaurant and pub, and there should be no problems in obtaining a liquor licence” (described as “Negligent Mis-statements” in the Yu 1^st Aff and as “Change of User Representation” in Mr Chan’s written submissions), so AVC clearly assumed responsibility for the consequences should the Representations and/or Change of User Representation turned out to be wrong. Insofar as these allegations related to the Change of User Representation, Mr Chan in his written submissions described such defence as the “Change of User Representation Defence”.

40.  Relying on the Representations and/or Change of User Representation, and believing that the Premises were suitable for operating a Food Business (which turned out to be untrue), on 1 February 2013, GC settled the Arrears that JG owed to AVC and entered into an agreement with WG for the purchase of all JG’s shares.  Yu claimed it would not have made any commercial sense for GC to take over JG and the tenancy without some assurance that the Premises would be suitable for their intended use, and that there would be no obstacle in obtaining a liquor licence.

41.  But when GC set about to procure JG to turn the Premises into a Food Business, they were surprised to discover that the Staircase (as shown on the Building Plan but not featured on the Floor Plan) had been removed. The Staircase Removal (without BA’s approval and which therefore amounted to unauthorised/illegal alteration to the Premises) could not be discovered by visual inspection of the Premises, and it would be unreasonable to expect JG and/or GC to be able to discover such alteration.

42.  Yu claimed that the Building Plan showed that the Staircase was constructed for common use in the Building, so its illegal removal also constituted breach of the DMC and the TA, in particular the provisions referred to in paragraph 15 above. The Yu 1^st Aff claimed Patrick Lau Wing Wah (an authorised person for the purpose of the Buildings Ordinance Cap 123, “Lau”) opined that “it was impossible for [JG] to obtain a liquor licence and to gain approval from the fire services to run a catering business”.   But in his letter dated 2 July 2013 to JG, Lau merely confirmed he was not granted access to the Premises for site inspection, and went on to say as follows (“Lau Opinion”):

“Based on the photo (340-Photo 1) provided by [JG] and approved building (Alteration and Addition) plan extracted from the Buildings Department (drawing no AA-1) with approval date on 15 May 1989, as attached [ie the Building Plan], the [Staircase] and enclosure walls are removed. Such Removal works are classified building works under Buildings Ordinance and prior approval and consent from Building Authority is required.

Without the said prior approval and consent from the Building Authority, I am of the opinion that removal of such [Staircase] and enclosure walls is in contravention of the Buildings Ordinance and allied regulations.”

43.  Yu claimed there was total failure of consideration of the Actual TA since JG could not use the Premises to run a Food Business. When confronted by JG about the Staircase Removal, AVC’s Ho admitted the Premises were previously leased to a hot-pot restaurant which could not obtain a liquor licence due to the Staircase Removal.  The Staircase Removal being an illegal alteration to the Premises demonstrated thefalsity of the Representations made when JG entered into the Actual TA and of the Change of User Representation made when GC agreed to buy JG’s shares.

44.  Yu claimed that clause 11 of Section XI of the TA contradicted clause 7 of Part II of the Fifth Schedule of the TA.  Since the latter provision referred to ongoing repairs being carried out by AVC, the former provision could not have meant what was literally stated therein. When the TA was signed, both JG and AVC intended the Premises to undergo further repairs before AVC would hand over possession to JG. Given the poor state of the Premises, it would be absurd to suggest JG entered into the TA without any assurance about (a) their condition and (b) the absence of illegal structures/alterations.  Yu claimed this was why AVC agreed to repair the Premises in the first place, and why the TA did not completely reflect the Actual TA (which included the Representations that would operate collateral to the TA) as between the parties.

45.  Yu also said it lied ill in AVC’s mouth to suggest they could rely on clause 4 of Part II of the Fifth Schedule of the TA (which referred to warranty only and not illegal structure/alteration) to negate the existence of any illegal structure, especially one that would fundamentally affect JG’s occupation of the Premises. The illegal Staircase Removal not only affected the “state and condition” of the Premises but also constituted a fundamental breach of the Actual TA with high risk of enforcement action by the government against AVC and JG during the tenancy term. It was said that the purpose of the Actual TA had completely failed, and there was total failure of consideration.

46.  Yu claimed that as a result JG’s solicitors sent the 11/3/13 Letter to terminate the Actual TA over the Premises. Yu further claimed JG had a valid counterclaim against AVC for loss and damages which could be set-off against any sum (if any) owing to AVC. Yu said there was no ground for AVC to strike out the D&C.  Further, since AVC’s claim was very weak, there was no reason for the court to order interim payment in their favour.

47.  Yu also believed GC would have a cause of action in negligent mis-statement against AVC and Ho since GC suffered loss and damages by relying upon the Change of User Representation in acquiring JG, which turned out to be untrue in that the Premises could not be used for operating any Food Business. GC reserved the right to ventilate their claims in court against AVC and/or Ho to enable the whole picture in respect of GC’s purchase of JG’s shares to be determined by the court together with the present action.

VIII.  DISCUSSION

48.  Mr Chan submitted that the Three Defences raised triable issues and/or arguable defences as supported by the factual underpinning set out in the Yu 1^st Aff, and such defences ought to be investigated at trial.

(a)  Yu’s information/belief

49.  To start, it must be plain that Yu would not have any personal knowledge of the matters concerning the Premises and/or the tenancy before CF/GC came into the picture.[13] In the Yu 1^st Aff, Yu claimed that “[save] as otherwise stated, the facts deposed to herein are …… true to the best of [her] knowledge, information and belief being derived from information and matters provided to [her] by [JG] and from such other sources as are identified in [Yu 1^st Aff]”. But apart from two matters that Yu said Lam told her,[14] she did not identify the source of her information/belief apart from her general assertion that they came from JG. She also did not explain why she would name Lam as her source of information/belief for two matters and not identify her source of information/belief for other pre-February 2013 facts and matters.  Bearing in mind the requirement of Order 41 rule 5(2) of RHC,[15] Master S Kwang held that such lack of particularity would render a substantial part of the Yu 1^st Aff inadmissible. But even if it were not so, it would still reflect on the credibility/believability of Yu’s pre-February 2013 factual assertions, eg the state/condition of the Premises and/or the Representations/Assurances.

(b)  Alleged dispute between JG and AVC

50.  Mr Chan relied on the alleged dispute between AVC and JG over the tenancy/user of the Premises in the three months following the signing of the TA to lend credence to Yu’s explanation for JG’s non-payment of the Arrears.  Yu further claimed that such alleged dispute caused AVC to approach and persuade CF/GC to acquire JG and thereby to take over the tenancy of the Premises, which Yu claimed led to AVC’s Change of User Representation.

51.  Mr Chan submitted that the relevant background facts that gave rise to such dispute included AVC’s (a) alleged non-delivery or late delivery of possession of the Premises to JG due to the Canopy Removal and the reparatory works for remedying the dilapidated state of the Premises and/or (b) failure to give the Formal Notice as required under clause 7 of Part II of the Fifth Schedule of the TA, which matters formed the backbone of the Formal Notice Defence that is now abandoned.

52.  I shall deal with such contentions in three respects: (a) the state/condition of the Premises, (b) the requirement for the Formal Notice, and (c) the Canopy Removal.

(c) Condition of the Premises

53.  First, Yu claimed (and Mr Chan submitted) that the dilapidated state of the Premises (a) required reparatory works so AVC was unable to hand over possession of the Premises to JG (and JG could not use the Premises as showroom for the Goods) even though the Premises were vacant, and (b) was evidenced by a photograph of the Premises and by clause 7 of Part II of the Fifth Schedule of the TA which provided that repair works had to be done in the Premises.

54.  But I note that Yu failed to mention the Premises were in fact let and to be handed over to JG in “bare-shell” condition pursuant to clause 11 of Section XI of the TA. As Ho explained, it was customary for landlords of retail shops to hand over possession to tenants in “bare-shell” condition because shop operators preferred to have their own unique design/decoration or to adopt the same style/theme as their other shops. Here, the Handover Form already made clear JG had accepted possession of the Premises in “bare-shell” condition.  

55.  I do not agree with Yu’s suggestion that clause 11 of Section XI of the TAcontradicted clause 7 of Part II of the Fifth Schedule of the TA. By clause 11 of Section XI of the TA, JG (a) confirmed they had duly inspected the Premises and was fully satisfied and accepted in all respects the then state/condition of the Premises, which would be handed over to them by AVC in the same state, condition and repair, and (b) acknowledged AVC made no warranty or representation as to the state/condition of the Premises. Yu did not give any satisfactory explanation as to why JG would enter into the TA in such terms if they were concerned over the state/condition of the Premises upon inspection.

56.  Yu did not clarify what reparatory works were envisaged under clause 7 of Part II of the Fifth Schedule of the TA or whether and if so when such reparatory works in the Premises were commenced, carried out and/or completed pursuant to such provision at any stage prior to the 9/1/13 Letters. In contrast, Ho explained that it was envisaged under such provision that AVC would carry out repair works in the Premises before handing over possession of the same to JG because during inspection of the Premises before entering into the TA Lam told him there were spallings at the ceiling (and this was JG’s only concern at such inspection) and at Lam’s request AVC agreed to repair the same. Such limited repairs were quickly completed after the inspection. In my view, Ho’s affirmation evidence sits well with (a) the TA which provided that the Premises were to be handed over to JG in “bare-shell” condition, and (b) the Handover Form by which JG acknowledged AVC delivered possession of the Premises in such condition on 11 September 2012. Ho further claimed that in fact JG were not concerned with the state of the Premises because like any shop operator they intended to fully renovate the Premises.

57.  Yu did not explain why JG signed the Handover Form if (according to them) there was delayed delivery (or even non-delivery) of possession of the Premises to them, especially when they acknowledged on such form they were satisfied the Premises were in “bare-shell” and satisfactory condition when handed over to them. Indeed, no complaint by JG as to the dilapidated state of the Premises was noted in the Handover Form.  In my view, JG’s allegations in this respect are not credible or believable.

(d) Formal Notice

58.  Even though Ho frankly accepted no Formal Notice or any written notice had been issued to JG, for the reasons set out in Part VIII(c) and (e) herein, JG’s suggestion of non-delivery or delayed delivery of possession of the Premises by AVC to them cannot be supported. Such conclusion is further bolstered by two matters.

59.  First, I agree with Mr Chong that JG must have received prior oral notice (if not written notice) from AVC to take possession of the Premises otherwise JG’s representative would not have been there to accept the relevant keys for the Premises and/or to sign the Handover Form. I further note it was stated in the letter dated 29 May 2013 from JG’s solicitors to AVC’s solicitors that JG returned vacant possession of the Premises to AVC, which surely must mean that AVC had previously delivered possession of the Premises to JG.

60.  Secondly, even if AVC had been in breach of the requirement for a Formal Notice and by reason thereof the tenancy over the Premises had not even commenced (which AVC denied and I disagree), JG would have been aware of such breach and yet they went on to pay AVC the Arrears demanded in the 9/1/13 Letters on 1 February 2013, which payment must have amounted to an affirmation of the TA and a waiver of such breach. In my view, JG’s allegation that the dilapidated state of the Premises caused or contributed to the dispute between JG and AVC is not believable.

(e)  Canopy Removal

61.  There was no dispute that the Canopy Removal works were completed only in December 2012. In the Ho 1^st and 3^rd Affs, Ho said (a) the Canopy did not protrude from the Premises which as a ground floor shop had no canopy, (b) the protruding Canopy on the first floor was the responsibility of the IO, (c) AVC was not in a position to make (and never made) any promise to JG to remove the Canopy since such matter concerned the Building and not the Premises, and (d) the Canopy was eventually removed by the IO (and not by AVC) in December 2012.

62.  Consistent with Ho’s assertions, I note from the cross-sectional drawing of the ground and first floors of the Building on the Building Plan that theCanopy protruded from the external wall outside the first floor of the Building. This is also borne out by the photograph produced by JG, which showed that the Canopy along the frontage of the Building facing Marsh Road and Jaffe Road protruded from the external wall of the first floor of the Building.

63.  Significantly, Yu did not explain why the Canopy Removal works (being removal works outside the Premises in contra-distinction to repair works in the Premises) were not clearly spelled out in clause 7 of Part II of the Fifth Schedule of the TA or why the IO would request AVC to remove the Canopy if it were part of the Premises in AVC’s exclusive possession and not common parts of the Building.  In this respect, it is interesting to note from the photograph produced by JG that the Canopy was not simply above the Premises but extended along the frontage of the Building, including the main entrance of the Building that abutted Jaffe Road (which main entrance must surely be common parts of the Building).

64.  Ho also said (and I agree) even if AVC had represented to JG that they would remove the Canopy before handing over possession of the Premises (which was denied), JG did not complain and must have waived their complaint over the Canopy Removal works when they took possession of the Premises from AVC on 11 September 2012,[16] and when they paid the Arrears on 1 February 2013.  Had JG been concerned about the state of the Premises and the completion of the Canopy Removal when they took possession of the Premises, they would not have signed the Handover Form without qualification and/or settled the Arrears without protest. Mr Chan’s submissions insinuated that AVC’s initial demand for the Arrears by the 9/1/13 Letters was issued only after the completion of the Canopy Removal in December 2012, but there was no affirmation evidence before me of any correlation between these two matters.

65.  In the circumstances, the suggestion that AVC promised JG to remove the Canopy is not credible or believable. It necessarily follows that Yu’s claims that (a) JG was concerned about obstruction/disruption to the showroom business as a result of AVC’s Canopy Removal works and/or other Hazards, and (b) JG had informed AVC of such concerns would also suffer from the same shortcoming. Indeed, Ho expressly confirmed in the Ho 1^st and 3^rd Affs that Lam (who as JG’s representative inspected the Premises before entering into the TA) did not inform AVC of such alleged concerns, and JG never protested against any obstruction/disturbance arising from the Canopy Removal works.

(f)  Representations and Assurances

66.  It further follows from the above analysis it is also not credible or believable for JG to claim that AVC made the pre-contract Representations/Assurances or that the tenancy over the Premises was governed by the Actual TA instead of the TA. The Ho 1^st and 3^rd Affs complained that Yu (who would not have any personal knowledge of the pre-TA negotiations between AVC’s Ho and JG’s Lam) did not condescend upon particulars as to which person on AVC’s behalf allegedly uttered the Representations/Assurances to which person on JG’s behalf and/or which persons on behalf of AVC and JG respectively made the Pre-Collateral Contract.

67.  On JG’s own case that AVC had previous experience of leasing the Premises to a hot-pot restaurant that could not obtain a restaurant licence because of the Staircase Removal, it made no commercial sense for AVC to forego the protection of express provisions in the TA[17] and make the same mistake again by uttering the Representations/Assurances. Rather, the Ho 1^st and 3^rd Affs by confirming that the TA recorded the entire understanding/agreement between the parties, and by denying the Pre-Collateral Contract and/or the partly oral (Representations) and partly written (TA) Actual TA appeared logical and convincing.

68.  In my view, JG was unable to raise any credible or believable challenge to Ho’s confirmation that AVC never gave the pre-contract Representations/Assurances to induce JG to lease the Premises. As Ho said, had there been such Representations/Assurances, there was no logical or commercial reason (and there was none set out in the Yu 1^st Aff) for the parties not to cause them to be reduced into writing in the TA when JG claimed the Representations/Assurances formed the crux of their negotiations. I find it incredible that notwithstanding the Representations which JG claimed they relied on, they still entered into the TA that contained express terms[18] adverse to (a) the Representations/Assurances and/or (b) the alleged implied terms under the Implied Terms Defence, and then relied on the Assurances to override those adverse express provisions in the TA to give efficacy to the Representations. Why not simply set out an accurate special condition in Part II of the Fifth Schedule of the TA to properly reflect the Representations in respect of the Premises?

69.  Further, it is also trite there can be no implied condition on leasing of premises that they are physically fit for the purpose for which they are let or that they can lawfully be used for such purpose,[19] and it is not forbidden to make or take a tenancy of unauthorised building works.[20] In any event, as a matter of contract, a term will not be implied if it is inconsistent with the express wording of the contract.[21]

70.  It is therefore unsurprising that JG no longer pursued the Formal Notice, Actual TA, Implied Terms and Misrepresentation Defences (which all related to alleged facts/matters before or at the time of contract) even though the D&C and the Yu 1^st Aff expressly referred to such defences.

(g) WG’s sale of JG’s shares to GC

71.  Consequential upon the above analysis, there cannot be any arguable or triable basis for JG to say the alleged history of the dispute between AVC and JG justified JG’s refusal to pay the Arrears or for Yu to suggest that Ho on behalf of AVC conceived of the idea that WG should sell JG to GC and then persuaded GC to buy JG’s shares from WG (and thereby take up the tenancy of the Premises) “to salvage [AVC] out of its dispute with [JG]”. In my view, there is no merit to Mr Chan’s submissions that by reason of JG’s dispute with AVC they could have “[escalated] the matters and/or to seek rescission of the tenancy”. There is also no credible explanation why JG would remain as tenant of the Premises when on their case they did not even have possession of the Premises and the opportune time for selling the Goods had passed.

72.  Mr Chan accepted that the Yu 1^st Aff did not explain why AVC’s Ho would approach GC to acquire JG, but tried to make light of such reticence by saying it was “not the fundamental question”.  Ho claimed JG’s allegations defied logic, and went on to say no one within AVC’s management knew Yu and/or CG until Lim Wu (“Wu”) approached AVC just after the 9/1/13 Letters to say CF had acquired JG and would like to change the user of the Premises to a Food Business.  In my view, there is no persuasive commercial reason why AVC as creditor landlord would take the initiative to become involved in WG’s commercial strategy over their ownership of the defaulting tenant JG(in contra-distinction to any attempt to transfer the remaining tenancy of the Premises to CF/GC as replacement tenant) and/or why AVCwould happen to know at that time that WG was interested in selling their shares in JG and CF/GC were interested in buying such shares. Even if CF/GC were interested in leasing the Premises to operate a Food Business, Yu did not explain GC’s commercial philanthropy that extended not only to the purchase of JG’s shares but also to their assumption of responsibility to pay the Arrears for an unrelated company JG to allegedly “salvage [an unrelated landlord AVC] out of its dispute with [JG]”. I find Yu’s allegations in this respect incredible and/or unbelievable.

(h) 11/3/13 Letter and D&C

73.  Before I turn to consider the post-contract Change of User Representation and Post-Collateral Contract Defences in detail, I note there was no mention of the factual underpinning for these defences in the 11/3/13 Letter and/or in the D&C, the latter of which was verified by statement of truth by Yu who also deposed to the Yu 1^st Aff that raised the Change of User Representation. Instead, the 11/3/13 Letter and the D&C referred to the pre-contract Representations/Assurances, but the Misrepresentation and Implied Terms Defences are now abandoned. Yu did not explain why the Change of User Representation was not mentioned until the Yu 1^st Aff, especially when the 11/3/13 Letter was sent under legal advice quite shortly after such alleged representation. Further, although the collateral contract under the Post-Collateral Contract Defence must be a matter of fact and evidence, it was first raised in the written submissions of the plaintiff’s counsel for the Master Hearing. Mr Chong reminded me of the guidance in Hong Kong Civil Procedure 2014[22] that “[where] the defence rests on a collateral oral agreement, the defendant’s threshold onus is compounded by the onus to strictly prove the collateral oral agreement ……” No explanation has been forthcoming as to why such collateral contract was not even hinted in the D&C and/or expressly spelled out in the Yu 1^st Aff.

74.  Mr Chan accepted the Change of User Representation and Post-Collateral Contract Defences might not be fully/sufficiently pleaded in the D&C or properly spelled out in Yu 1^st Aff, but he claimed they were arguable and triable, and JG was consequently entitled to terminate the tenancy over the Premises by the 11/3/13 Letter. He referred to my judgment in Ko Hong and Ko Chi Ching both trading as Wing Yick Chau Chong v Chow Hung Wai and Chow Hung Choi both trading as Man Hung Store,[23] and submitted that the court was entitled to consider all relevant matters to determine whether or not the defendant demonstrated any arguable defence.

75.  In Ko Hong and Ko Chi Ching both trading as Wing Yick Chau Chong, which concerned Order 14 rule 4(1) of the Rules of the District Court[24] which provides that a defendant may show cause “by affidavit or otherwise to the satisfaction of the court”, I said at paragraph 48 therein that a defendant is not necessarily bound by his pleaded defence in resisting a summary judgment application, and if the affirmation in opposition raised triable issues or arguable defences it would be open to the defendant to apply for amendment of the defence in due course especially if it were at an early stage of the proceedings. But that said, the court may view the newly raised defence contention (especially if it relates to factual matters that ought to have been within the defendant’s knowledge and information at the material time or at the time when the defence pleadings were filed) with a jaundiced eye when assessing whether or not in all the circumstances such new contention is believable or credible.  With that, I turn to the present circumstances.

(i)  Refusal of Change of User Defence

76.  Again, before I turn to the alleged Change of User Representation, I note JG no longer relied on the Refusal of Change of User Defence. Ho’s short answer to such purported defence in the Ho 1^st and 3^rd Aff was that (a) he did not make any Change of User Representation, and (b) AVC did not refuse JG’s request for change of the user of the Premises as they were still processing such request when JG prematurely terminated the tenancy by the 11/3/13 Letter, but (c) even on JG’s case (which AVC denied), a refusal of the requested change of the user of the Premises could not be said to be unreasonable since the proposed Food Business user was substantially different from the original retail shop user, and AVC knew from past experience in leasing the Premises to a hot-pot restaurant that no restaurant licence could be obtained due to the Staircase Removal.

(j)  Change of User Representation and corresponding collateral contract

77.  For the Change of User Representation, since I have found that JG’s allegation of a history of dispute between them and AVC is not credible or believable, Yu’s claim that Ho made the Change of User Representation as a result of her telling Ho that GC intended to run a Food Business at the Premises but did not want the previous problems with the tenancy arrangements to occur again (since customers would not want to eat at a place with construction work outside), and likewise such assertion would also lose credibility. There is no persuasive commercial reason why AVC would warrant that the Premises would be suitable for all purposes (including a Food Business) and for obtaining a liquor licence:

(a) Ho knew the Premises were situated in an old building; [25]

(b) Section I of the TA provided that any approval for change of the user of the Premises must be in writing (and not by oral representation or contract), and there is no evidence before me that JG had supplied to AVC any particulars of the Food Business they intended to operate;

(c) clause 4 of Part II of the Fifth Schedule and clause 11 of Section XI of the TA expressly disclaimed any warranty as to user or fitness of the Premises for use for any purpose intended by JG, so it was improbable for Ho (who had been in the property field for over 20 years) to have uttered the Change of User Representation when AVC had the TA with the above express provisions in hand;

(d) even on JG’s case (which AVC denied), AVC already knew from past experience in leasing the Premises to a hot-pot restaurant that no restaurant licence could be obtained for operating a Food Business at the Premises due to the Staircase Removal.

78.  It is perhaps useful to also review JG’s case through the prism of the contemporaneous documentary evidence being the three emails dated 20, 25 and 26 February 2013 respectively (“Emails”).

79.  First, Wu’s email to AVC’s Ho and William Hui (“Hui”) on 20 February 2013 (“20/2/13 Email”) read as follows:

“Dear Mr Ho,

Nice to meet you at our office.

During our meeting, you (the Landlord) agreed and permit the Tenant to change the use of the aid Premises given that the outstanding rental, management fee and the rates due from the Tenant has been fully paid to the Landlord. The use of the premises is restricted by Clause 4, Part II Special Conditions, the Fifth Schedule of the [TA]. Subsequently the cheque of HK$448,031.40 to settle the outstanding payments mentioned above has been delivered to the Landlord on 1 Feb 2013. Therefore, we hereby request to obtain a letter from the Landlord stating that permission is given to the Tenant to change the use of the premises intended by the Tenant at your earliest.

The primary floor plan subject to further amendments is provided below for your reference.

Should you have any queries, please feel free to call our Ms Yu or Ms Wu at xxxx xxxx for further discussions.

Thank you for your kind attention.

 

Best regards,

[Wu]
[CF]”

80.  AVC’s Hui replied to JG’s Connie Yu on 25 February 2013 as follows (“25/2/13 Email”):

“Dear Ms Yu,

We refer to your [Wu’s] [20/2/13 Email] regarding the Tenant’s change of the Use of the Premises together with a floor plan. The information you provided are insufficient. Before we can submit your request to our senior management for their consideration and approval, we need further information from your side, namely,

1) The new type of business intended by the Tenant;

2) The proposed Trade Name of your new business (with written evidence the Tenant can use such name;

3) The tier level of your new business (e.g. high ends, middle class, etc);

4) The target customers;

5) The list of Management team running the intended new business, including the Licence holder(s) (if Licence is required);

6) A perspective design of the new intended business, including shop façade outlook, internal design, etc;

7) Detail layout plans including, floor plan, ceiling plans, shop front design, etc;

8) Any reference shop(s) of the same business type you are presently running for the Landlord’s reference.

We hope to receive you favorable reply soon. Should you have any enquiries, please feel free to call us at xxxx xxxx.

 

Thanks and best regards

[Hui]
For [Ho]”

81.  On 26 February 2013, Wu replied to AVC’s Hui with copy to inter alia Ho and Connie Yu as follows (“26/2/13 Email”):

“Dear William,

Please find our response to your message below asking for further information for your process of the Supplement Tenancy Agreement:

1) Bar and restaurant;

2) A very elegance name subject to final confirmation by the Management of the Group;

3) Both high ends and middle class;

4) Same as item 3;

5) The application of the Licence is in progress, therefore the management team is to be confirmed;

6) The management is in the negotiation with the designers currently, hence to be submitted as soon as practicable;

7) A revised floor plan to be submitted to apply the licence is attached herewith;

8) A Chinese high ends restaurant named Guo Fu Lau located at the basement of the Empire Hotel, Wanchai. Guo Fu Lau has awarded one star Michelin as you may find its name in the 2013 Michelin Guide Hong Kong.

Please let us have the Supplemental Tenancy Agreement regarding the revision of the terms of the use of the premises for your lawyer’s review in order to proceed our restaurant opening faster at your earliest convenience.

 

Thanks and regards,

[Wu]”

82.  Mr Chan submitted that the Emails lent credence to the existence of the Change of User Representation:

(a) the 20/2/13 Email (i) referred to a meeting at Wu’s office prior to 20 February 2013 and AVC’s agreement with and permission to JG to change the user of the Premises upon full payment of the Arrears, (ii) stated CF had issued a cheque to AVC on 1 February 2013 to pay such Arrears, (iii) enclosed a floor plan (subject to further amendments) prepared for running a Food Business at the Premises, and (iv) asked for a letter from AVC confirming their approval to change the user of the Premises to Food Business;

(b) the request for more information in the 25/2/13 Email was not inconsistent with or “not completely against” the aforesaid agreement (since AVC would need information to approve fitting out plans for a vetting fee under clause 2 of Section III and clause 15 of Section XI of the TA) otherwise Ho (with his 20 years’ experience in the property field) would have said so in such email;

(c) the 26/2/13 Email showed that an application for “the Licence” (presumably the liquor licence) was in progress;

(d) there was no response by AVC to the 26/2/13 Email.

83.  Mr Chan further submitted that given the Change of User Representation, it also formed a “post-collateral contract as between [AVC] and [JG]” with the consideration being the continuation of the tenancy under the TA with alteration of position and/or reliance/detriment by JG (“Post-Collateral Contract”).  Mr Chan argued that the viability of the Change of User Representation rendered such defence (ie the Post-Collateral Contract Defence) believable.

84.  On the other hand, Ho claimed that when the Emails were reviewed as a whole, it was clear that despite Wu’s allegation of agreement and permission for change of the user of the Premises in the 20/2/13 Email, the true position as reflected in the subsequent 25/2/13 and 26/2/13 Emails (being contemporaneous objective evidence) was that AVC was prepared to consider JG’s application for change of the user of the Premises only after they had submitted requisite information and plans for AVC’s consideration. Ho added that AVC was in the course of processing of JG’s application upon payment of the Arrears and provision of requisite information that JG suddenly and prematurely terminated the tenancy by the 11/3/13 Letter, hence AVC by the 14/3/13 Letter made a reply to refute JG’s allegations.

85.  In my view, having read the 20/2/13 Email in light of the 25/2/13 and 26/3/13 Emails as well as the contextual background as discussed above, bearing in mind that the requested change of the user of the Premises was a material one from retail showroom to Food Business, and in particular noting AVC’s request in the 25/2/13 Email for a host of information about the proposed new user “[before] we can submit your request to our senior management for their consideration and approval” (my emphasis), and JG’s provision of such information by the 26/2/13 Email without demur, the Emails as a whole show that as at late February 2013 AVC had not yet approved any request for change of the user of the Premises to Food Business. Indeed, by the 26/2/13 Email, JG not only supplied the information requested by AVC but also asked AVC to “process” the supplementary tenancy agreement for change of the user of the Premises, which plainly suggested there was as yet no representation or agreement for change of the user of the Premises. In my view, it is plain from the tenor of the Emails as a whole that at that time AVC was still in the course of processing JG’s request for change of the user of the Premises. It is telling that (a) there was in fact no written approval by AVC or supplemental tenancy agreement between JG and AVC, (b) the 11/3/13 Letter (sent quite shortly after the alleged Change of User Representation and Post-Collateral Contract) and/or the D&C did not refer to such facts and matters even though events around that period of time were canvassed and (c) in the D&C JG relied on the Refusal of Change of User Defence rather than on AVC’s alleged representation, agreement and/or permission for change of the user of the Premises to Food Business.

86.  Had AVC made the Change of User Representation and/or the Post-Collateral Contract as alleged, it would not have been necessary for AVC’s senior management to still consider and approve any change of the user of the Premises to Food Business as at 25 February 2013. Mr Chan tried to explain away the 25/2/13 Email by saying that AVC would charge a vetting fee for reviewing/approving JG’s fitting out plans,[26] but I disagree. AVC’s requests for information in the 25/2/13 Email were not limited to exterior façade, signage design, layout and fittings of the proposed Food Business; rather, a significant part of the queries related to the proposed business itself, eg type of business, proposed trade name (and whether JG could use such name), the tier level of the proposed business, the target customers, the management teams, the reference shop(s) then run by JG etc, all of which went to the application for change of the user of the Premises rather than to any fitting out plans. In my view, clearly the information requested by AVC would be relevant to the deliberation over whether to approve the proposed material change of the user of the Premises from retail shop to Food Business. Also, it appeared commercially unsound if, as JG contended, AVC assured them of change of the user of the Premises to Food Business before having such information. In my view, the Change of User Representation is not capable of belief.

(k)  GC and/or JG as representatee(s)?

87.  But even if the Change of User Representation were capable of belief, JG faces another hurdle. The Yu 1^st Aff claimed that such representation (or negligent mis-statement as Yu described it) was made to GC[27] and not to JG, and it was GC that relied on such representation or mis-statement (which turned out to be untrue) to pay the Arrears “on behalf of [JG] to [AVC]” and to contract with WG to purchase JG’s shares. Question therefore arises as to whether the Change of User Representation and Post-Collateral Contract Defences (even if they were viable) were open to JG or to GC.

88.  Mr Chan submitted that the Change of User Representation and the Post-Collateral Contract must also have been made to/with JG otherwise “the subsequent take-over [presumably of JG by GC] made no sense”. He added that since such representation and contract affected the Premises, it was arguable they were also made to/with JG. Mr Chan submitted that (a) the negotiations took place not only between CF/GC and AVC but also with JG, (b) Wu in issuing the 20/2/13 Email did so on behalf of JG and GC even though such email on its face was sent by Wu for CF, (c) notwithstanding the Yu 1^st Aff stated that AVC’s Ho made the Change of User Representation to GC’s Yu such representation was also made to JG (through Yu and/or GC), (d) GC believing in the Change of User Representation contracted with WG on 1 February 2013 to purchase JG’s shares and JG allowed itself to be taken over by GC, and (e) JG procured GC to pay the Arrears on their behalf.

89.  First, Yu did not say in the Yu 1^st Aff that the Change of User Representation was also made to JG or that the Post-Collateral Contract was a tripartite agreement amongst AVC, GC and JG.

90.  Secondly, Wu in sending the 20/2/13 Email did so expressly for CF. But even if she also represented JG (on the basis that GC had already acquired JG on 1 February 2013) in issuing the 20/2/13 Email, it would be quite irrelevant. According to Yu, the Change of User Representation and the Post-Collateral Contract were made during the negotiations before GC was committed to buying JG’s shares and before GC paid the Arrears on JG’s behalf (ie before 1 February 2013). Therefore, at that time GC’s and CF’s Yu was not yet in a position to represent JG, and AVC could not have made any representation or entered into any collateral contract to/with JG through Yu.

91.  Mr Chan tried to say Wu represented both JG and CF by referring to the Ho 1^st and 3^rd Affs which stated that soon after the 9/1/13 Letters Wu as representative of JG approached and informed him that CF had acquired JG.  But this surely related to a different point in time, ie after 1 February 2013 when GC had already acquired JG’s shares from WG, and not when the Change of User Representation and the Post-Collateral Contract were made during negotiations before 1 February 2013. In any event, the Yu 1^st Aff stated that the Change of User Representation was made to Yu and not Wu.  This does not aid Mr Chan’s contentions.

92.  Thirdly, Mr Chan’s suggestion that JG allowed itself to be taken over by GC is not understood. There is no such allegation in the Yu 1^st Aff, and there is no evidence before me that JG consented to or acquiesced in the sale and purchase transaction between WG and GC, or that JG relied on the Change of User Representation to do so. Anyway, the relevant transaction was a sale and purchase of shares between WG and CG which did not involve the company JG or required JG’s acquiescence. In my view, this explained why the Yu 1^st Aff claimed GC would have recourse against AVC for alleged breach of the Change of User Representation.[28]

93.  Fourthly, JG was a contracting party to the TA, and any change of the user of the Premises would require AVC’s written approval and variation of the TA. In my view, this was why in the 26/2/13 Email Wu asked for a supplemental tenancy agreement.

94.  In all the circumstances, I find Ho’s account in the Ho 1^st and 3^rd Affs commercially persuasive and unshaken by JG’s contrary assertions. It was soon after the 9/1/13 Letters that Wu as JG’s representative approached and informed AVC CF had acquired JG.  Ho was told that CF would pay the Arrears on JG’s behalf, and Wu asked for AVC’s approval to change the user of the Premises to Food Business. Since the Premises were let to JG for a substantially different user as a retail shop, AVC “asked for all the relevant information from [Wu] to look at before [AVC] could properly consider their application”, and they told Wu JG had to settle the Arrears before they would look into such application. Accordingly, Wu arranged for GC to paythe Arrears of $448,031.40 on JG’s behalf on 1 February 2013, and at AVC’s request she sent them information concerning the proposed change of the user of the Premises.

(l)  Staircase Removal

95.  But even if JG were able to establish the Change of User Representation and/or the Post-Collateral Contract, they still have to demonstrate the falsity of such representation and/or breach of contract in order to establish the Change of User Representation and Post-Collateral Contract Defences. I note, however, that JG had abandoned the Misrepresentation, Quiet Enjoyment and Illegality Defences.

96.  JG claimed the Change of User Representation was an untrue representation that justified rescission of the Actual TA in that the Staircase Removal without the BA’s approval was an unauthorised alteration to the Premises, and as a result no liquor licence could be obtained and consequently the Premises could not be used for any Food Business.

97.  Before dealing with such contention, I propose to quickly dispose of several preliminary points. First, even if the Staircase Removal amounted to unauthorised works, it would not be sufficient to taint the TA with illegality. In any event, JG no longer relied on the Illegality Defence.

98.  Secondly, it is unclear (and I am not satisfied) that the Building Plan was the “original building plan” of the Building as alleged in the 11/3/13 Letter. After all, the Building was completed in the 1960s,[29] but the Building Plan was only approved in 1989.  The Lau Opinion referred to it as the “building (Alteration and Addition) plan”.[30]

99.  Thirdly, I am not satisfied that the Staircase were common parts of the Building, The Building Plan showed (and Mr Chan accepted) the Staircase serviced the Premises on the ground floor and Units A-E on the first floor of the Building.  These premises were private properties previously owned by AVC, so the Staircase serviced private units and was not a common staircase for general use by occupants and visitors of the Building.  Indeed, the Building Plan showed a separate set of staircase for common use of the Building at the lift lobby accessible via the main entrance at Jaffe Road. The Staircase that serviced the ground and first floor private units was separated from the lift lobby and common staircase by enclosure walls and was accessible only through the staircase entrance at Marsh Road. I agree with Ho the Building Plan showed that the Staircase could only be used when the ground floor and first floor units had the same occupier.  There is no evidence to dispute Ho’s explanation that the Staircase had to be removed in 1993 when AVC sold Units A-E on the first floor of the Building.  There is also no evidence before me that AVC and/or the owner of the first floor premises had given up and turned the Staircase and/or the entrance to such staircase at Jaffe Road into common parts of the Building.  I am therefore unable to accept Yu’s suggestion that the Staircase was for common use of the Building, or that its removal would deprive use of the common areas by visitors or occupants of the Building that would pose risk of enforcement under the DMC as Yu alleged.

100.  Fifthly, I do not see how the Staircase Removal would have affected JG’s use of the Premises or how it would result in defective/ damaged condition of the Premises (when the Premises had become a self-contained unit separate from Units A-E on the first floor of the Building and it was let as such as evident from the Floor Plan). As explained in paragraph 69 above, it is not forbidden to make or take a tenancy of unauthorised building works.  JG also failed to produce the Govt Lease to explain why the Staircase Removal might amount to breach of the Govt Lease liable to government re-entry.

101.  Sixthly, there is no sufficient basis for the Quiet Enjoyment Defence (which has been abandoned). A covenant for quiet enjoyment is prospective in operation and does not apply to (a) things done before the grant of the tenancy even though they may have continuing consequences for the tenant or (b) interferences consequent upon the condition of the property before the grant of the tenancy.[31] Since the Staircase Removal was done before the TA, JG could not rely on this defence in any event.

102.  Seventhly, there is no direct evidence before me that the Staircase Removal amounted to unauthorised building works apart from the Lau Opinion.  Master S Kwong considered such expert opinion to be inadmissible for failing to satisfy Order 38 rules 37A and 37C of the RHC, which provide that an expert report should be verified by statement of truth and should contain a declaration of compliance with the code of conduct. Mr Chan submitted that “at most, the [Lau Opinion] should only be considered inadmissible as the expert evidence, but it does not stop the Court from taking into account such evidence (of Mr Patrick Lau) as general hearsay evidence”.  It is difficult to see how inadmissible expert opinion evidence can become admissible factual hearsay evidence. Under Order 38 rule 41 of the RHC, leave of the court is required before expert opinion can be adduced by hearsay.  Mr Chan next submitted that even without the Lau Opinion, there was no evidence from AVC that the Staircase Removal was authorised building works.  But in my view, it is for JG as defendant to establish triable issue or arguable defence, and not for AVC as plaintiff to disprove allegations.

103.  But even if the Staircase Removal were uauthorised works, there is still insufficient evidence (other than Yu’s bare assertion) that the Staircase Removal would result in refusal of liquor licence by the relevant authority and/or in the Premises being unfit for operating a Food Business. The Lau Opinion did not go so far, and Yu did not put forward any ground for her bare assertion (other than the matters discussed in the paragraph below). The 26/2/13 Email referred to “the application of the Licence is in progress”, but JG did not produce any document from the Liquor Licence Board and/or state the result of such application.

104.  JG averred that when they confronted AVC on the Staircase Removal, AVC admitted the Premises were previously leased to a hot-pot restaurant which could not obtain a proper restaurant licence because of the Staircase Removal.  But Ho gave affirmation evidence that JG never confronted him face to face about the Staircase Removal, and he could not recall JG ever protested to him of being unable to obtain a liquor licence because of the Staircase Removal. Ho said the first time AVC received complaint about the Staircase Removal and inability to obtain a liquor licence was the 11/3/13 Letter.

105.  Mr Chan complained that Ho in the Ho 3^rd Aff failed to respond directly to JG’s assertion, and his assertion of not being able to recall (when he ought to have known of the licence situation of the hot-pot restaurant) was weak and unconvincing. In my view, this is not a fair summary of Ho’s evidence for he made clear that JG never confronted him face to face about the Staircase Removal, and it was in such context that he could not recall JG having protested about the Staircase Removal.

106.  On the other hand, Mr Chong argued (and I agree) that if (on JG’s case which AVC disputed) (a) AVC previously leased the Premises to a hot-pot restaurant that could not obtain a restaurant licence because of the Staircase Removal and (b) there was previous dispute between AVC and JG about the fitness of the Premises for use as a showroom for the Goods that culminated in non-payment of the Arrears, there was no commercial reason for AVC to commit the same mistake again by making the Change of User Representation and/or the Post-Collateral Contract and acceding to change of the user of the Premises to Food Business.

107.  In any event, Ho claimed that even if JG could not obtain a liquor licence and/or approval by the Fire Services Department to run a Food Business (which was denied), it had nothing to do AVC.  Under the TA, AVC let the Premises to JG for retail purpose, and clause 4 of Part II of the Fifth Schedule and  clause 11 of Section XI of the TA provided that AVC gave no warranty or representation regarding the state/condition of the Premises, including their fitness for use for any purposes intended by JG, or the legality, quality or fitness of their fittings/condition, and that JG would not be entitled to terminate the TA on the ground that the Premises were not permitted to be used for any purpose intended by JG.

(m)  No warranty clause

108.  AVC relied on the aforesaid no warranty clauses to argue that JG was estopped from relying on the Change of User Representation and the Post-Collateral Contract Defences.

109.  In Wing Siu Co Ltd v Goldquest International Ltd (No 2),[32] Ma J (as he then was) said at p.429 as follows:

“ 20. Finally, I come to Ms Ismail’s reliance on cl 5(8) of the lease: the entire agreement clause. The clause states as follows:

This Lease sets out the full agreement reached between the parties and no other warranties or representations express or implied have been made or given by the Landlord or by anybody on its behalf relating to the Building or the Premises and if any such representation or warranty has been given or implied the same is hereby withdrawn and is deemed to have been withdrawn immediately before the execution of this Lease.

21. The lease was made subsequent to the alleged collateral contract. Quite apart from its terms being completely inconsistent with the existence of the alleged collateral contract, in my view, Ms Ismail is right when she says that cl 5(8) operates to prevent the defendant from relying on this defence. Although the clause does not in terms exclude the applicability of any previous agreements or promises, I am of the view that it is sufficiently wide to cover any reliance on the alleged collateral contract. In Intreprenneur Pub Company (GL) v. East Crown Ltd[2000] 2 Lloyd’s Rep. 611, Lightman J had to deal with a clause that was more or less only stated that the written agreement in that case constituted the ‘entire agreement’ between the parties: see 613(1). Like cl 5(8) of the lease, there was no express exclusion of previous agreements or promises. The learned judge held, however, that the words in that case were sufficient to exclude the application of any alleged collateral contract: see 614(1)-615(1). With respect, the reasoning of Lightman J in Intreprenneur is compelling and I follow it. The nature of a collateral contract (or collateral warranty as it is sometimes called) is that it involves an assurance or warranty: see Chitty at para 12-101. The words ‘representation or warranty’ contained in cl 5(8) are apt in my view to cover collateral contracts.”

Hence, on the above reasoning, Mr Chong submitted that clause 4 of Part II of the Fifth Schedule and clause 11 of Section XI of the TA applied not only to exclude the applicability of the Change of User Representation but also the Post-Collateral Contract.

110.  However, Mr Chan submitted that Natamon Protpakorn v Citibank NA [33] showed that such provisions could not deter JG from running the Change of User Representation and the Post-Collateral Contract Defences for the purpose of resisting the the Summons.

111.  In Natamon Protpakorn, the plaintiff customer claimed she relied on oral representations by a bank officer that she would be allowed to “roll over” foreign exchange contracts with the bank at the original exchange rate (so that she could recover losses when the exchange rate moved back in her favour) provided she maintained sufficient margin to carry out margin foreign exchange trading on those terms. Later, another bank officer who took over her accounts confirmed the continuation of such arrangement. Still later, the parties agreed to revise the terms so that the contracts would roll over for six months at the prevailing rather than the original exchange rate.  Eventually, the bank closed out the contracts due to alleged concerns about her sources of wealth. The plaintiff sued the bank for breach of the aforesaid agreement as varied, and the bank relied on their standard agreement which they claimed allowed them to terminate her trading account at their absolute discretion and on the following provision therein which further precluded any claim by her against the bank for any loss arising out of such termination:

“No amendment or waiver of any provision hereof or of any Contract, nor consent to any departure by the Account Holder therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.”

112.  The court refused leave for the plaintiff to amend the statement of claim, which was struck out. On appeal she relied on breach of the aforesaid agreement as varied which she claimed was a collateral/ independent contract and/or misrepresentation, and the bank was estopped from relying on their unjustified reasons for terminating the contracts.

113.  Cheung JA held as follows:

“33. Collateral contract is an exception to the parol evidence rule, which precludes the admission of oral evidence to contradict the terms of a written agreement.  The collateral contract is, however, treated as an independent contract and therefore not subject to the rule.  Clause II 15 is an attempt to “internalize” or to “formalize” this rule in the relationship between the plaintiff and the defendant.  Although not expressly stated to be the case, this clause may also be in the nature of an “entire contract clause”. 

34. I am prepared to accept, for the purpose of this application, that whether or not Clause II 15 applies depends on the construction of its terms.  However, even if by its wording it applies to this case, that is still not the end of the matter because Chitty on Contracts, Vol.1 at p.630 para.12-104, states that such a clause can be waived by a party who might otherwise have relied on it, citing SAM Business Systems Ltd v Hedley & Co [2003] 1 All ER (Comm) 465.  That case was not referred to by the parties in this appeal.  But as Sedley LJ recognized in World Online Telecom Ltd v I-Way Limited [2002] EWCA Civ 413, there is still room for debate on this issue because of the absence of decisive authority, and that summary judgment should not be granted on that basis (see also Langston Group Corporation v Cardiff City Football Club Ltd [2008] EWHC 535).  An example of such a clause being rendered ineffective is the case of Phillips v Sa Sa International Holdings Ltd (unrep., HCA 5190/2001, [2002] HKEC 483), wherein the parties expressly agreed that certain oral terms should not be revealed to the public.

35. In my view there is clearly room for argument in this case that Clause II 15 may not be applicable having regard to the sequence of conduct of the defendant as described by the plaintiff.  Both Mr Lai and Ms Poh belonged to the senior management of the defendant, and they should be taken to know the terms of the Standard Agreement.  If the defendant was of the view that Clause II 15 governed the relationship of the parties, its conduct in allowing the plaintiff to trade on the terms as agreed by Mr Lai, its confirmation of the terms when Ms Poh took over from Mr Lai, taken together with its subsequent conduct in allowing the plaintiff to continue to roll over the contracts although with a limited duration, was fundamentally inconsistent with this avowed position.  The plaintiff stated that by relying on the confirmation she carried out further transactions, and further by relying on the revised terms she had executed six new contracts.  In my view the questions of waiver and estoppel, be it promissory or otherwise, are clearly matters that are available to the plaintiff.  This cannot be resolved in an interlocutory proceeding and should be canvassed at a full hearing at trial.”

114.  Neither counsel referred to Lucky Zone Holdings Limited v Winning Beauty Investments Limited & anor,[34] which discussed Natamon Protpakorn. In that case, which also concerned a summary judgment application, the plaintiff sought redemption payment of three convertible notes. The defendants relied on a prior oral agreement made at a meeting before entering into the 1^st convertible note that the plaintiff would invest in the defendants by way of convertible notes for developing gaming software, and upon delivery of such gaming software to the plaintiff’s group the plaintiff would exercise its option to convert the investment into shares in the respective defendants.  In reliance of this oral term, the defendants entered into written subscription agreements and convertible note instruments, and their related companies entered into other agreements.  Alternatively, the defendants argued that the plaintiff’s redemption option under the convertible notes was abrogated or the plaintiff waived their right to otherwise enforce those options.

115.  The plaintiff denied any meeting and arrangement as alleged. Further, the plaintiff maintained the three convertible notes expressly provided that they shall have the absolute discretion to decide whether to exercise the redemption or share subscription option. The learned judge held that the alleged oral term was diametrically contradicted by such express written provision and affronted commercial sense in the context of that case. If the parties had agreed to the alleged oral term, which was so important, there was no reason why it did not find its way into the convertible notes or why the mistaken express provision would be repeated three times. Such alleged oral term was not raised when the plaintiff issued the redemption notices. It was raised for the first time in the Defence. The learned judge found there was an air of recent concoction. Further, the subscription agreement signed after the alleged oral term was reached contained an entire agreement clause :

“ This Agreement constitutes the entire agreement between the parties hereto with respect to the matters dealt with herein and supersedes any previous agreements, arrangements, statements, understandings or transactions between the parties hereto in relation to the matters hereof.”

116.  The defendants’ counsel threw doubt on the principles in Intreprenneur Pub Company (GL) v East Crown Ltd [35] and Wing Siu Co Ltd by saying that according to Natamon Protpakorn there was room for debate on the applicability and effectiveness of the entire agreement clause in situations where waiver and estoppel might be invoked.  Hence, if there was a believable case on factual basis for waiver and estoppel, the case should go to trial.

117.  To J said as follows:

“28. Cheung JA quoted the entire agreement clause in Inntrepreneur and then Lightman J’s formulation and legal basis of the rule.  He treated the oral agreement as a collateral contract which is an exception to the parol evidence rule and that the entire agreement clause was an attempt of the parties to “internalize” the parol evidence rule in their contractual relationship.  He held whether the entire agreement clause applied depended on the construction of its terms and that such a clause can be waived.  This is a trite principle which cannot be doubted.  In Inntrepreneur, Lightman J proceeded on the construction that the entire agreement had the effect of excluding oral terms.  Then Cheung JA went on to hold in §35 that because of the bank’s subsequent conduct in allowing the plaintiff to trade on the terms of the 2001 agreement and 2004 agreement the question of waiver and estoppels arose.  The issue which Cheung JA said was open to dispute was the effect of waiver and estoppel on an entire agreement clause.  It was on his finding that there was evidence of waiver that he held that the dispute should be canvassed at a full hearing at trial.

29. In Fortis Insurance Company (Asia) Limited, the issue was whether an entire agreement clause was a complete answer to the contentions that there was some agreement outside the terms of the written agreements themselves or that the principles of waiver and/or estoppel were available. The Court of Appeal also referred to Inntrepreneur.  Then while focusing on the question of waiver and estoppel, Kwan JA said she agreed with Cheung JA that there was room for debate on the applicability and effectiveness of the entire agreement clause in situations where waiver and estoppels might be invoked.  She had no criticism that on its true construction, the clause could not exclude other oral agreements.

30. With respect to Mr Li, by no reading of these four cases can I come to the view that the Court of Appeal ever doubted the correctness of Lightman J’s dicta in Inntrepreneur which was followed in Edward Wong Finance Co Ltd.  I think what the Court of Appeal did in the later decisions was to add a gloss to the construction of an entire agreement clause such that whatever the construction given to that clause it may be rendered ineffective by reason of the general principle of waiver and estoppel.  Thus, the meaning and effect of an entire agreement clause is a question of construction; and whether that clause shall have that effect as intended by the parties may be subject to the principles of waiver and estoppel.  There are two questions involved: one is a question of construction, the other is a question of waiver and estoppels.  The Court of Appeal entertained no doubt in respect of the first question but thought there is room for debate in respect of the latter. It is important to note that the Court of Appeal in Natamon and Fortis Insurance Company (Asia) Limited never for a moment suggested on the basis of construction that pre-contract oral negotiations or oral agreements are capable of defeating the express provisions of an entire agreement clause.  Also, the conduct in those two cases which constituted waiver or estoppels was conduct subsequent to the entire agreement clause.”

118.  To J held that on the true construction of the exclusive agreement clause in the case before him any oral terms reached prior to the share subscription agreements were rendered ineffective. Also, there was hardly any post-contract conduct on which the defendants could launch any argument of waiver or estoppel.  The defence relying on the oral term failed as a matter of law and fact.

119.  Mr Chan submitted that since the relevant discussions and the Change of User Representation all happened well after the TA was signed on 12 September 2012, it was at least arguable that such post-contract conduct/representation fell outside clause 11 of Section XI of the TA.

120.  I respectfully agree with To J’s reading of the authorities. There is no room to doubt the principles for the construction of entire agreement clauses in Intreprenneur Pub Company (GL) and Wing Siu Co Ltd.  The only gloss added by Natamon Protpakorn is that such clause can be rendered ineffective by the general principle of waiver and estoppel, which is a separate question from the question of construction. Here, it is plain from the express provisions of the TA that before and at the time of the TA AVC did not make or give any warranty as to inter alia (a) fitness of the Premises for any user intended by JG, (b) the user of the Premises, (c) the state/condition of the Premises/Building, and such provisions had prospective or continuing effect because (i) it was for JG as tenant to obtain all permits and licences for their user of the Premises, and (ii) the TA provided for potential change of the user of the Premises, and JG could not terminate the TA on the ground that the Premises was not permissible to be used for any purpose intended by JG.  In the circumstances, clause 4 of Part II of the Fifth Schedule and clause 11 of Section XI of the TA are applicable.  Further, by reason of the aforesaid analysis, there is no credible factual basis for JG to assert any viable waiver or estoppel. It is useful to note that an estoppel defence has to be specifically pleaded.  Hong Kong Civil Procedure 2014 states that “[estoppel] must be specifically pleaded, unless there is no opportunity to do so …… Waiver must also be specifically pleaded ……”[36]  There is no explanation why no such plea found its way into the D&C.

(n)  Revised Promissory Estoppel Defence

121.  For the Revised Promissory Estoppel Defence, Mr Chan submitted that it would be inequitable for AVC to enforce the express terms of the TA to recover outstanding rent without regard to the Change of User Representation and Post-Collateral Contract Defences, which defences were believable, credible and arguable in both law and facts.  I described this as the Revised Promissory Estoppel Defence because Mr Chan no longer relied on the “promise” in paragraph 21(b)(i) above.

122.  But by reason of the above analysis, I am also not persuaded that the Revised Promissory Estoppel Defence, which is heavily grounded on the Change of User Representation and the Post-Collateral Defences, is credible or believable.  Significantly, even according to the Yu 1^st Aff, the Change of User Representation was made to GC (and not JG), and it is doubtful whether JG could rely on the same.  Likewise, such defence has not been pleaded, and no explanation is forthcoming for such omission.

(o)  Conclusion

123.  Under the TA, JG was required to pay rent “in advance clear of all deductions”. In my view, JG had no arguable defence to AVC’s claims being the subject matter of the Judgment. This is a plain and obvious case, and the various contentions raised by JG were simply not credible or believable.  That being the case, there is no basis for Mr Chan’s suggestion that JG would be entitled to substantial damages under their counterclaim which was based on the same arguments.

124.  In the circumstances, the Appeal is dismissed. There is no reason why costs should not follow event. I therefore grant a costs order nisi that JG do pay costs of and occasioned by the Appeal to be summarily assessed and paid forthwith.

125.  I further direct that if no application is made to vary the costs order nisi, JG shall within 14 days from today lodge and serve succinct Points of Objection in bullet-point format of not more than one page in respect of AVC’s statement of costs (“Objection Summary”), and unless otherwise directed the summary assessment of costs will be by paper disposal. If application is made to vary the costs order nisi within 14 days from today, JG shall lodge and serve within 14 days from today statement of costs not exceeding one page pursuant to Practice Direction 14.3, and both AVC and JG shall lodge and serve their respective Objection Summary to the other party’s statement of costs within 7 days thereafter, and the party seeking variation of the costs order nisi do within 14 days from the date hereof fix a date with the Listing Clerk for the hearing of the application for variation of the costs order nisi and summary assessment of costs before me in chambers (open to the public) on a date not before 35 days from the date hereof with half hour reserved.