TSE SIU HOI v. LEE DICK GOLD AND JEWELLERY LTD

LDPE 1132/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 1132 OF 2014

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JUDGMENT
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Background

1.  This is an application in which the applicant is applying for

(i) recovery of possession of Shop B, No 66 San Hong Street, Sheung Shui, New Territories (“the Premises”); and

(ii) order for mense profits from 1 October 2014 to the date of vacant possession.

2.  By a tenancy agreement in English which was prepared by Messrs Raymond Chan, Kenneth Yuen & Co, Solicitors (hereinafter referred to as “Raymond Chan”) dated 11 June 2004, the Premises were let by Silver Joyce Investment Limited (“Silver Joyce”), the predecessor in title of the applicant, to the respondent for a term of 4 years from 25 June 2004 to 24 June 2008.

3.  When the tenancy agreement above referred to expired, Silver Joyce and the respondent entered into a new tenancy agreement dated 10 July 2008 (hereinafter referred to as “the 2008 agreement”), this time prepared by Lung Sum Estate Agency. This tenancy agreement in Chinese appears in a standard form and contains, inter alia, the following provisions:

「(一) 甲方將上水新康街66號B舖…租與乙方雙方訂定租金每月港幣貳萬捌仟元正(收租時另發租單為憑)訂明租用兩年由二ΟO八年六月二十五日起至二O一O年六月二十四日止規定租戶在租用期內不得退租否則按照所餘租期之時間計算租金;

(二) 訂明乙方不得分租或轉租與別人除所租用之樓宇外其他地方不得佔用租約期滿住客如若繼續租賃或退租須於壹個月之前以書面通知(續租則另訂新約方生效力);

……

  (十二) 備註双方同意由2010年6月25日至2012年6月24日每月租金為港幣$30,000元正。」

4.  That is, according to clause 1, although the 2008 agreement was expressed to be for a term of two years from 25 June 2008 to 24 June 2010 at a monthly rent of $28,000, clause 12, the contents of which were added, according to the respondent, by a Ms Chan of Lung Sum Estate Agency (“Ms Chan”), stated there would be a renewal of the term for two further years from 25 June 2010 to 24 June 2012 at a monthly rent of $30,000. On the other hand, a summary of the 2008 agreement at the back stated the tenancy agreement was for a term between 25 June 2008 to 24 June 2012.

5.  Clause 2 of the 2008 agreement may be classified as tenant’s covenants

(i) not to sublet, assign;

(ii) not to use other areas apart from the Premises;

(iii) to inform (the landlord) by a 1-month prior written notice of its intention to renew or surrender the tenancy upon its expiry (any renewal being effective only upon formulation of a new tenancy agreement).

6.  It is undisputed that, despite the latter provision, there was no new written tenancy agreement when 25 June 2010 arrived.

7.  Subsequently, Silver Joyce and the respondent only entered into a new tenancy agreement dated 17 July 2012 (hereinafter referred to as “the 2012 agreement”), again in Chinese and in standard form prepared by Lung Sum Estate Agency, according to the respondent, through Ms Chan but of a slightly different version.

8.  By reference to the copy of the 2012 agreement provided by the respondent (which is not disputed), clause 1 states the tenancy agreement was for a term of two years from 1 July 2012 to 30 June 2014 at a monthly rent of $55,000; the summary at the back as regards the length of the term has been left blank however[1]. Clause 2 is the same as that of the 2008 agreement. In contrast to the 2008 agreement, however, clause 12 of the 2012 agreement is as follows:

「(十二) 備註: 租約為兩年梗約兩年生約。」

9.  That is, the 2012 agreement was stated to be for a term of 2 years fixed and 2 years open the meaning of which becomes now the subject of dispute between the applicant and the respondent. Of particular difference from the 2008 agreement, this clause 12 is standard printed save the words “兩” ie “two” which were inserted in handwriting.

10.  Also, a clause 13 has been added in handwriting as follows:

「(十三) 上述租約條件同舊租約一樣。」

11.  In English, I translate it as “the above term(s) of the tenancy should be the same as in the previous one”.

12.  Then the following events occurred leading to the present application:

Date	Particulars
5 Feb 14	The respondent received a notice to quit issued by Raymond Chan on behalf of Silver Joyce stating that the 2012 agreement would be determined on 30 June 2014.
17 Feb 14	The respondent instructed Messrs David YY Fung & Co (“David YY Fung”) to rebut by letter that clauses 2 and 12 together provided it an option to renew the tenancy for another 2 years. The letter also stated: “Pursuant to the Agreement, we hereby on behalf of our client give you on behalf of your client, notice that our client hereby exercises the said option and/or its rights to renew the tenancy for another 2 years, namely from 1st July 2014 to 30th June 2016. Please let us have your draft Tenancy Agreement for our approval in compliance with Clause 2 of the Agreement.”
3 Apr 14	The applicant entered into a provisional sale and purchase agreement with Silver Joyce to buy G/F, 1/F, 2/F & Rooftop, 66 San Hong Street (ie including the Premises) which is registered vide memorial 14050202140012 in Land Registry.
8 Apr 14	David YY Fung sent a letter to Raymond Chan alleging that “Mr L(i) and Mr Y(ang), the respective representatives of our respective clients, did on 7th April 2014 over the telephone confirm that the existing tenancy as to the Premises between our respective clients be renewed for 2 years, namely from 1st July 2014 to 30th June 2016, at a monthly rent of HK$57,000.00 while the other terms and conditions of the existing tenancy agreement remain unchanged.”
17 Apr 14	Letter apparently signed by Mr Yang of Silver Joyce reminding the respondent that the fixed term under the 2012 agreement would expire on 30 June 2014 and Silver Joyce would resume the Premises on 1 July 2014.
10 May 14	David YY Fung sent a letter to Raymond Chan re-stating that the respondent had exercised the option to renew the 2012 agreement for another 2 years and requested to have a draft Tenancy Agreement for approval.
20 May 14	Raymond Chan sent a letter to David YY Fung, inter alia, denying the existence of an option to renew under the 2012 agreement.
21 May 14	David YY Fung sent a letter to Raymond Chan, inter alia, reaffirming the contents of its letter of 10 May 2014.
23 Jun 14	Raymond Chan sent a letter to David YY Fung, inter alia, demanding vacant possession of the Premises on 30 June 2014 and “the alleged option shall in all respect be void”.
27 Jun 14	David YY Fung sent a letter to Raymond Chan, inter alia, re-stating the respondent had duly exercised the option to renew the 2012 agreement.
4 Jul 14	Raymond Chan sent a letter to David YY Fung stating that “our client exercised its rights to terminate the said tenancy such that your client must deliver vacant possession” of the Premises to Silver Joyce.
10 Jul 14	Raymond Chan sent a letter to David YY Fung purporting to respond to a letter from the latter dated 8 July 2014 (the contents of which is not provided) and stating, inter alia, its position as of the letter dated 4 July 14.
3 Jul 14	The respondent deposited $57,000 into the account of Silver Joyce.
2 Aug 14	The respondent deposited $57,000 into the account of Silver Joyce.
29 Aug 14	The respondent deposited $57,000 into the account of Silver Joyce.
11 Sep 14	The applicant became the owner of the Premises by an Assignment vide memorial 14100802410129 registered in Land Registry on 8 October 2014.
16 Sep 14	Messrs Tam & Partners, Solicitors (“Tam”) issued a “Final Notice” to the respondent requiring the latter to quit and deliver up vacant possession of the Premises to its landlord on or before 22 September 2014.
19 Sep 14	David YY Fung sent a letter to Tam, inter alia, repeating the respondent’s stance that it had duly exercised the option to renew the 2012 agreement.
23 Sep 14	Tam sent a letter to David YY Fung stating that “there is no ‘option to renew’” under the 2012 agreement and the tenancy had already expired.
27 Sep 14	David YY Fung sent a letter to Tam, inter alia, repeating the respondent’s stance that it had duly exercised the option to renew the 2012 agreement.
29 Sep 14	Tam sent a letter to David YY Fung stating that this was a notice to quit and requesting the respondent to give vacant possession of the Premises to the applicant on or before 1 November 2014. In paragraph 5 of the letter, “Our client is determined to obtain vacant possession of the Premises and would not accept any payment from your client except mesne profits through our firm.”
	On the same day, Tam sent a letter to David YY Fung stating, inter alia, that it only received the latter’s letter of 27 September 2014 on that day.
30 Sep 14	David YY Fung sent a bank draft to Tam purporting as rent for the Premises for the period of 1 October 2014 to 31 October 2014. Tam refused to accept and the bank draft was returned to David YY Fung on that day. This bank draft was sent to Tam again on the same day.
3 Oct 14	Tam returned the bank draft to David YY Fung.
31 Oct 14	Tam sent a letter to David YY Fung demanding the respondent to deliver vacant possession of the Premises to the applicant on or before 1 November 2014.
18 Nov 14	The applicant commenced the present application.
25 Nov 14	The respondent filed the Notice of Opposition dated 24 November 2014.
15 Dec 14	Upon the preliminary hearing, H H Judge K W Wong made an order that the respondent do pay interim payment at the rate of $60,000 per month into the Tribunal commencing from October 2014 for occupation of the Premises.

Issues for determination by the Tribunal

13.  The parties agree the primary issue of this application is whether the respondent is entitled to remain in possession of the Premises until 30 June 2016 as a lawful tenant.

14.  Then the parties agree the following secondary issues:

(i) Whether the 2012 agreement was validly reached by Silver Joyce and the respondent?

(ii) Whether the 2012 agreement contained an option to renew?

(iii) Whether Silver Joyce and/or the respondent had validly exercised the option to renew in the 2012 agreement that created a new tenancy?

(iv) If the renewal did come into existence, whether the applicant should be bound by the said renewal that entitles the respondent to have exclusive possession over the Premises as a lawful tenant until 30 June 2016?

(v) In case the renewal in question does not come into existence, how much should be paid to the applicant by the respondent as mesne profits?

Whether the 2012 agreement was validly reached by Silver Joyce and the respondent?

15.  In fact, the applicant does not contend the 2012 agreement was not validly reached. He only contends that the 2012 agreement was only from 1 July 2012 to 30 June 2014 and no more.

Whether the 2012 agreement contained an option to renew?

16.  As I stated in §9 above, the real dispute between the parties is the interpretation of clause 12 of the 2012 agreement: 「兩年梗約兩年生約。」

17.  In Hui Fung v Lau Kin [1995-2000] HKCLRT 472 (“Hui Fung”), each tenancy in dispute contained a clause 1 similar to the 2012 agreement:

“The Tenant hereby rents from the Landlord … [particulars of the subject premises] … from 7 January 1999 to 6 January 2001, with one year being fixed tenancy and the other year being open tenancy「一年死約一年生約」(for a total of 24 months), at a rent of HK$15,180 per month payable in advance, and the rental does not include rates at $497 per month and management fees at $552. (In case of adjustment, the adjusted figure will prevail.)”

18.  At §8 of the judgment, Leong JA affirmed the Tribunal’s view that the term of each tenancy in dispute was a fixed-term tenancy commencing on 7 January 1999 and expiring on 6 January 2001. Although the tenancy agreement referred to “one year being fixed tenancy and the other year being open tenancy”, the agreement expressly stated that the term of the tenancy was 24 months.  He came to this view because he found clause 18 of such tenancy provided a break clause giving the tenant the right to terminate the tenancy before its expiry, on condition that, 12 months after the commencement of the rental period, the tenant could in advance give one month’s notice or pay rent in lieu of notice.

19.  Cheung J (as he then was) agreed at §51 of the judgment that each tenancy is for a term of 24 months from 7 January 1999 to 6 January 2001 which was manifestly clear in the agreement. He also remarked that the terms “fixed tenancy” and “open tenancy” are commonly used terms as opposed to legal terms that bear specific legal meanings. He explained further that the so-called “open tenancy” meant that the tenant was entitled to terminate the tenancy 12 months after the commencement of the rental period; that is to say, the tenancy could be terminated after 7 January 2000 if the tenant gave one month’s notice or makes one month’s payment in lieu of notice. Basically the tenancy was still for a term of two years.

20.  Although Woo JA (as he then was) dissented, his view that the tenant was entitled to apply for a new tenancy under section 119A of the Landlord and Tenant (Consolidation) Ordinance[2] was based on a note to clause 1 which stated: “The parties agree that, during the rental period from 6 January 2000, the tenant was entitled to fix a new rent with the landlord, and the rent cannot exceed $15,180”. Woo JA however commented that this note did not ensure that the parties would reach an agreement on the new rent. At §35, he remarked “(a)t law, this condition subsequent may be regarded as unenforceable for being uncertain, with the result that the remaining one-year term of the tenancy is rendered invalid. It follows that the agreement takes effect as creating a tenancy for only one year as opposed to two years …”

21.  Woo JA also had an another view that the open term in clause 1 was in conflict with clause 18 (which is lacking in the 2012 agreement here). He tended to modify clause 18 so that the tenant was entitled to give one whole month’s notice in advance on or before 6 December 1999 so as to terminate the tenancy on 6 January 2000 being 12 months after the commencement of the tenancy.

22.  In Itec Food Limited v Gleeville Company Limited [2001] 1 HKLRD 850 (“Itec Food”), there was a provisional tenancy agreement which stipulated as follows:

"Term of tenancy from 16 December 1999 to 15 December 2003 (首兩年為死約，尾兩年為生約)."

23.  Thereafter, when the formal agreement was further negotiated between solicitors for both parties, a break clause was inserted so that after first two years had lapsed, the tenant could give a six months' notice of termination in writing and put an end to the tenancy. But then the landlord changed its mind and intended to amend the clause so that that the tenancy was for a term of two years only, after which, the tenant would have an option to renew the tenancy for another two years at market rental. The term of the tenancy was amended in turn to two years, commencing from 16 December 1999 and expiring on 15 December 2001.

24.  When this case was heard before Yam J in the Court of First Instance, counsel for the landlord referred to certain evidence of the tenant's agent, a Mr Yau and submitted that the original intention was for two years with an option to renew for another two years. Yam J first held that this piece of evidence was not admissible and the parties should stand or fall on the wordings of the provisional tenancy agreement. In any event, the evidence of Mr Yau actually supported the tenant's version as the original draft was "from 16th December 1999 to 15th December 2001 (死約)" (which meant fixed term) and "from 16th December 2001 to 15th December 2003 (生約)" (which meant a break clause in favour of the tenant the plaintiff herein for the second two years of lease). Yam J affirmed that the dominant rule of interpretation was to take the natural meaning of the words. There was no indication in the provisional agreement that the tenancy was a two-year tenancy with an option to renew. The term of the tenancy was stated to be from 16 December 1999 to 15 December 2003, making it a four-year tenancy. Therefore, it could not be interpreted as entitling the landlord either to charge or to re-negotiate the tenancy for a market rental after the expiration of the first two years. The term "死約" meant the tenant could not terminate the tenancy and the term "生約" on the contrary meant the tenant was entitled to terminate by giving notice.

25.  Then in鄭秀枝及另一人 v陳愛玲, HCSA 44/2002 (unreported, dated 18 December 2002) (“Cheng Sau Gee”), the tenancy in dispute was for a term of 2 years from 1 September 2000 to 31 August 2002 during which the tenant could not determine the tenancy. However, the tenancy agreement also stipulated that one year was fixed term and the other year was open term, the rental for the two years remaining unchanged「一年實約，另一年生約，兩年租金不變」. Deputy High Court Judge Andrew Cheung (as he then was) considered the terms「實約」,「死約」or「生約」are not new to the property rental market; he considered terms such as「實約」and「死約」 meant the tenancy term should be fixed whereas the term 「生約」meant the tenancy term would be flexible and subject to early termination.

26.  In this case, there was a clause stating that: 「租客在租期期滿，如欲繼續租用物業，必須給予業主一個月之事前書面通知續租，另訂新租約方能生效」, a clause which is very similar to clause 2 of the 2012 agreement where I translate in §5 above as upon expiry of the tenancy term, should the tenant wish to continue to rent the property, he has to inform the landlord by a 1-month prior written notice, but any renewal being effective only upon formulation of a new tenancy agreement. Deputy Judge Cheung considered this clause only applied when the two-year (ie including both the fixed and open term) expired but would not affect the early termination during the open term. See §13 of the judgment.

27.  In Cheung Chung Wing v Chan Oi Ling, HCSA 59/2002 (unreported, dated 16 July 2003) (“Cheung Chung Wing”), the tenancy in question stated that the term was for 2 years from 5 June 2000 to 4 June 2002. Following this, like Cheng Sau Gee, supra, there was also a statement: 「一年實約，另一年生約，兩年租金不變」. Similarly, it had a clause 2 which stated:

「(二) 租客不得分租或轉租與別人, 除所租用之樓宇外, 租客不得佔用其他地方。 租約期滿, 住客如若繼續租賃或退租, 須於壹個月之前以書面通知 (續租則另訂新約方生效力) …… 」

which is nearly the same as that in the 2012 agreement or very similar to that in Cheng Sau Gee, supra.

28.  Deputy High Court Judge Johnson Lam (as he then was) concurred with Deputy Judge Cheung in Cheng Sau Gee, supra, as regards the interpretation of such clause. (See §11 of the judgment.)  Deputy Judge Lam also concurred with Yam J in Itec Food, supra, as regards the term 「生約」 which should mean conferring upon a right to terminate a tenancy during the open term. (See §14 of the judgment.)  Nevertheless, Deputy Judge Lam found conflicting terms in the tenancy agreement and therefore concluded that a contract and the contractual terms must be construed by reference to the relevant background against which the contract was made, citing, for instance, Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 at p 912-913.

29.  There was also a case before the District Court in 陳火光v 周建邦經營常春藤書店, DCCJ 4975/2005 (unreported, dated 28 July 2006) (“Chan For Kwong”) where the above cases were referred to and analysed.  In this case, the provisional tenancy provided the first two years of the tenancy were fixed whereas the further two years of the tenancy were open (租期:首兩年為“吉約”，次兩年為“生約” with the following rentals:

Fixed tenancy:
(i) 15 January 2001 – 14 January 2002	$45,000
(ii) 15 January 2002 – 14 January 2003	$50,000
Open tenancy:
(i) 15 January 2003 – 14 January 2004	$55,000
(ii) 15 January 2004 – 14 January 2005	$55,000

30.  According to the applicant in this case, when the fixed term expired and if the tenant would like to take up the open term, once the option was made, he should abide by the full term with no further right to determine the tenancy.

31.  At §137 of the judgment, Deputy District Judge K W Wong (as he then was) considered the tenancy did not expressly state the term was for 4 years and at §138, he remarked that if the open term was interpreted as providing the tenant with the right of termination, there was no provision as to how this could be done. Moreover, there was a remark no (2) that should the tenant wish to continue to rent the property, he was given the pre-emption. Therefore, the term “open tenancy” there could not be interpreted as conferring upon the tenant the right to determine as he had argued. Deputy Judge Wong gave judgment in favour of the landlord.

32.  More lately, in 張佩芳v 劉少珊, LDPD 1304/2011 (unreported, dated 29 July 2011) (“Cheung Pui Fong”), the tenancy provided for a term of 2 years subject to one year being fixed and the other being open「一年梗約、一年活約」. There was no provision as to how the open tenancy could be terminated. The applicant relied however on the verbal agreement and the interpretation of the estate agent to suggest that either party could give a 1-month notice to the other party to determine the open tenancy. Member Lo of the Lands Tribunal agreed that such interpretation was correct because this was the common parlance in the property market.

33.  Having reviewed the above precedents, the open term as stated in the 2012 agreement can have the following meaning:

(1) either party could give a 1-month notice to the other party to determine the open tenancy, as in Cheung Pui Fong; or

(2) the tenant was conferred upon a right to renew the tenancy for another 2 years when the fixed term expired, as in Chan For Kwong.

34.  At first glance, the first interpretation appears to be the correct answer, especially as Member Lo said in Cheung Pui Fong, the term「兩年梗約兩年生約」would usually be given such a meaning in the property market. This is particularly supported by the majority view in Hui Fung, the rulings in Itec Food and Cheng Sau Gee.

35.  However in Hui Fung, the tenancy was expressed to be for the full term and there was a clause 18 that provided a break clause giving the tenant the right to terminate the tenancy before its expiry. In comparison, the 2012 agreement only provides a term of 2 years instead of a term of 4 years; neither does it include a break clause.

36.  In Itec Food, the landlord did argue that open term conferred upon the tenant a right to renew the tenancy but Yam J found otherwise from evidence. Once again, the tenancy there was expressed to be for a full term of 4 years. The latter was also the case in Cheng Sau Gee.

37.  More particularly in Cheung Chung Wing, although Deputy Judge Lam concurred with Yam J in Itec Food that the term 「生約」 would usually mean conferring upon a right to terminate a tenancy during the open term, he concluded that a contract and the contractual terms must be construed by reference to the relevant background against which the contract was made. In the end, Deputy Judge Lam referred the case back to the Adjudicator of the Small Claims Tribunal for clarification.

38.  In the present case, I find the terms of the 2012 agreement are conflicting as in Cheung Chung Wing. Firstly, as I mentioned above, the tenancy was stated for a term of 2 years only but another clause stated there would be 2 years fixed and another 2 years open. This renders the direct application of Hui Fung, Itec Food, Cheng Sau Gee and Cheung Pui Fong not so apparent. This is particularly the case when the additional clause 13 suggests the tenancy should read the same as in the previous one, probably the 2008 agreement. 

39.  As stated in §4 above, the 2008 agreement also expressed the tenancy was for 2 years but the summary at the back of the agreement stated the term was as much as 4 years; clause 12 of the 2008 agreement stated clearly the rental for the later 2 years. All these are lacking in the 2012 agreement.

40.  In giving evidence, Mr Li Kang Chi (“Mr Li”), the alter ego of the respondent, said during the negotiation of the renewal in 2012, he had intended the 2012 agreement to be the same as the 2008 agreement and written on a label[3] provided by Ms Chan that, like that in the 2008 agreement, in the second term, ie during the open tenancy, the rental would be $57,000 per month, ie an increase of $2,000. He alleged that when signing the 2012 agreement, Mr Yang was in a hurry and therefore such term was not added because of oversight.

41.  It is trite that the one who alleges a certain thing exists should shoulder the burden of proof and it is regretted that neither Mr Yang of Silver Joyce nor Ms Chan are called to give evidence. It is also the case that pre-contract negotiations between the parties are not usually admissible as evidence, a view expressed by Yam J in Itec Food and by Lord Hoffmann sitting as a Non-Permanent Judge of the Hong Kong Court of Final Appeal in Jumbo King Limited v Faithful Properties Limited & Others (1999) 2 HKCFAR 279 at 296. Although the respondent tries to rely also on the letter of 8 April 2014sent by David YY Fung to Raymond Chan that alleged a telephone agreement for a renewal for 2 years, namely from 1^st July 2014 to 30^th June 2016, at a monthly rent of HK$57,000.00, such an agreement is inconsistent with what happened during the relevant period:

(i) A notice to quit was sent by Silver Joyce to the respondent on 5 February 2014 against the background that Silver Joyce was negotiating for a sale of the property including the Premises;

(ii) Chung Wai Wing on behalf of the applicant gave evidence that during the negotiation for purchase, he had reminded Mr Yang of Silver Joyce not to enter into new tenancies with the existing tenants;

(iii) An agreement for Sale and Purchase of the property including the Premises was entered into on 3 April 2014, ie only 4 days before the alleged telephone agreement occurred;

(iv) On 17 April 2014, Mr Yang of Silver Joyce sent a reminding letter to the respondent stating that the fixed term under the 2012 agreement would expire on 30 June 2014 and Silver Joyce would resume the Premises on 1 July 2014.

42.  Mr Ko for the respondent places significant emphasis on clause 2 of the 2012 agreement (which is the same as clause 2 of the 2008 agreement) that there was an option exercisable by the respondent to renew or surrender the tenancy upon its expiry. However, I agree with the submission by Mr Lam for the applicant that clause 2, reading as whole, merely states the obligation of tenant to inform which at most is equivalent to an invitation to treat; it is not a right to be given to the respondent. Indeed, in Cheng Sau Gee, supra, Deputy Judge Cheung considered such a clause only applied when the full tenancy expired but would not affect the early termination during the open term in that case.

43.  Recently, in Hung Cho Hing v趙麗紅, LDPE 190/2015, (unreported, dated 29 June 2015) (“Hung Cho Hing”), Deputy Judge Kot of this Tribunal arrived at a similar view on a clause similar to clause 2 of the 2012 agreement. She said at §24 of her judgment as follows:

“在本案的該租約中第二條條款，明顯地要求作為租客的答辯人，在打算續租時，須在一個月以前以書面通知申請人，而雙方即使同意續約，也須另訂新約方可生效。故此在決定答辯人曾否行使其續租權時，不能只以業主是否已收取租金為依據，因為這並不符該租約的規定，不能如 Gardner一案般，以此結論為已行使了續租權並已成功續約。” (underline added)

44.  To the extent that the open tenancy is argued as conferring upon a right to the respondent to renew the tenancy for another 2 years when the fixed tenancy expired, the 2012 agreement does not provide for a remark no (2) as in Chan For Kwong, supra.

45.  Should there be a requirement for implying such an option clause into the 2012 agreement, I bear in mind the 5 conditions set out by Lord Simon in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 (“BP Refinery”) at 26D:

“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express.  In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied : (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

46.  This statement was applied by Ribeiro PJ in the Court of Final Appeal in Kensland Realty Limited v Whale View Investment Limited (2001) 4 HKCFAR 381 at §59.

47.  In recent years, the courts have approached the implication of a term as part of the process of the interpretation of the contract as a whole.  In Attorney General of Belize v Belize Telecom Limited [2009] 1 WLR 1988, Lord Hoffmann, giving the opinion of the Privy Council, adopted the same approach. 

48.  Although Lord Hoffmann was dealing with the question of whether a term should be implied into the articles of association of a company, rather than into a contract, he was clear that the process was the same for both and indeed for any written instrument. 

49.  At §§16-17 of the judgment, Lord Hoffmann said:

“17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.

18. In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.” (underline added)

50.  He stressed at §21 that the implication of a term is an exercise in the construction of the instrument as a whole so that the central question for the Court is whether the implication “would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean”

51.  Then at §§26-27, Lord Hoffmann referred to the five conditions set out by Lord Simon in BP Refinery and said that the list should be “best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so”.

52.  In my view, it is neither reasonable nor obvious to a reasonable bystander there exists an option in favour of the respondent in the 2012 agreement. There is simply no mechanism for the exercise as spelt out in the 2012 agreement. The renewal at $57,000 per month as alleged for the open tenancy by the respondent, save for the telephone conversation as alleged on 7 April 2014 which I have dealt with in §41 above, has not ever appeared in the 2012 agreement. I agree with Mr Lam’s submission that if the respondent’s allegation as regards the negotiation of the 2012 agreement were correct, it would have been a very simple job for Ms Chan to write down the agreed rent for the period from 1 July 2014 to 30 June 2016 like what happened in the 2008 agreement. Having agreed to a contract through its own lack of prudence or failure in exercising due diligence, the respondent cannot turn around and argue that the 2012 agreement is not complete because there should be another term to be added.

53.  In any event, Mr Lam pointed out that this allegation is inconsistent with paragraph 6 in the Notice of Opposition dated 24 November 2014 where the respondent suggested that Silver Joyce was not entitled to any increase rent for the renewal term. This paragraph is recited as follows:

“Notwithstanding that the Respondent has, as it was entitled to, duly exercised the Option to renew the tenancy pursuant to the Tenancy Agreement and that the Landlord was not entitled to increase rent for the said renewed term, on about 7^th April 2014, Mr Li and Mr (Yang) on behalf of the Respondent and the Landlord respectively confirmed over the telephone that the monthly rent for the said renewed tenancy would be HJ$57,000 (the “New Rent”) while the other terms and conditions of the Tenancy Agreement would remain unchanged.” (underline added)

54.  In light of the above, I would adopt the view of Woo JA in Hui Fung that the open tenancy “may be regarded as unenforceable for being uncertain”, following which the remaining two-year term of the 2012 agreement is rendered invalid. I hold that the 2012 agreement takes effect as creating a tenancy for only two years and nothing more.

55.  I also agree with Mr Lam for the applicant that “續租則另訂新約方生效力” at the end of clause 2 contradicts the suggestion by Mr Ko that clause 2 itself provides any implication of an option exercisable by the respondent to renew or surrender the tenancy upon its expiry. This finding concurs with that of Deputy Judge Kot in Hung Cho Hing, supra.

56.  I do not consider clause 13 of the 2012 agreement can assist the respondent because what “上述租約條件” (the above terms of the tenancy) refers to is not clear from the document itself. If the phrase is referring to the length of the agreement, it is noted that the tenancy agreement in 2004 was for a fixed term of 4 years whereas the 2008 agreement was for 2-year fixed plus 2-year open. If the phrase is referring to clause 12 of the 2008 agreement, firstly the rental amount for the 2-year fixed tenancy is different; more importantly, it was silent on the amount of rental for the open tenancy. Inserting the renewal at $57,000 per month in the open tenancy is tantamount to re-writing it[4].

57.  Thus, I answer to the issue posed in the negative.

Whether only the respondent had validly exercised the option to renew in the 2012 agreement that created a new tenancy?

58.  As I have held that there is no option to renew as incorporated in the 2012 agreement, this is sufficient to dispose of this issue. See particularly §42 of the above. The respondent is a trespasser after 30 June 2014.

59.  Even If I am wrong in respect of the above, I agree with Cheung Pui Fong that it is market practice that either party could give a 1-month notice to the other party to determine the open tenancy.

60.  Furthermore, Mr Lam submits that if an option to renew otherwise exists in the 2012 agreement as alleged by the respondent, the demand for draft Tenancy Agreement by David YY Fung for the respondent is not compatible with an exercise of an option, a view similarly found in Polykote Coatings Manufacturing Company Limited v Grace Rehabilitaion Centre Limited, HCA 1477/2013 (“Polykote Coatings”). Here, To J said at §35 and §37 of his judgment dated 24 August 2015 that the letter intending to exercise an option must be precise and clearly understood by the recipient. In the present case, the last sentence of the letter of 17 February 2014 send by David YY Fung to Raymond Chan stated: “Please let us have your draft Tenancy Agreement for our approval in compliance with Clause 2 of the Agreement.” If an option to renew otherwise exists in the 2012 agreement as alleged by the respondent, why should the message conveyed in this letter suggested the respondent still wants to see if the terms of the renewal are agreeable. There should be nothing needed for approval. In this regard, I follow the judgment of To J in Polykote Coatings that the letter of 17 February 2014 cannot be construed as an exercise of an option to renew a pre-existing tenancy.

Whether the acceptance of the respondent’s rental payments after expiry of the tenancy amounted to a waiver?

61.  The respondent puts in evidence it had continued to deposit $57,000 per month into the account of Silver Joyce after 30 June 2014. However this does not necessarily amount to a waiver by Silver Joyce.

62.  It is trite that there can be no waiver by the acceptance of rent which had already accrued prior to the forfeiture. Ever since Price v Worwood (1859) 4 H & N 512 at 516 :-

"A receipt of rent, to operate as a waiver of a forfeiture, must be a receipt of rent due on a day after the forfeiture was incurred. The mere receipt of the money, the rent having become due previously, is of no consequence, and for the very plain reason that the entry for a condition broken does not at all affect the right to receive payment of a pre-existing debt."

63.  In Dreamgate Properties Ltd v. Arnot [1998] 76 P&CR 25 (“Dreamgate”),Dreamgate acquired the freehold of business premises from Eton College. The premises had been subject to a series of leases to Mr Arnot, the last of which was one dated 20 May 1983 but would have expired in September 1993 prior to the sale by Eton College to the plaintiff in January 1994. However, after the expiry, Eton had demanded and accepted a quarter’s rent from Mr Arnot. In proceedings for possession, Mr Arnot argued that a new tenancy had been created as a result of Eton College’s demand for and acceptance of rent for the quarter following the lease’s expiry. Mr Arnot relied upon the following matters:

1) The property had been sold subject to the 1983 lease;

2) In a letter dated 16 March 1994, Dreamgate had sought to rely upon one of the landlord’s rights contained in the 1983 lease; and

3) A notice to quit had been served by Dreamgate in March 1994 expressly referring to Mr Arnot as a quarterly tenant.

64.  However, the English Court of Appeal did not consider that this was sufficient to infer the creation of a new tenancy. It considered it relevant that the rent demand had been generated by a computer rather than as a result of any conscious decision and, therefore, did not indicate that landlord’s intentions. Mr Arnot failed to provide evidence of a new lease. Moreover, Eton would not have imperilled a sale to a third party by granting a new lease. The referral in the notice to quit to Mr Arnot as a quarterly tenant could not assist Mr Arnot if in fact no such tenancy had been granted. I consider the same rationale should be applied to the present case.

65.  Another similar incidence occurred in Shun Ho Energy Development Company Limited & Others v Golden Crown Industries Limited, CACV 161/2014 (unreported, dated 30 June 2015) where after the expiry the tenancies on 12 August 2013, the tenant held over and the landlords issued debit notes to the tenant for, inter alia, “rental” of the Premises for September 2013 and outstanding “rental” for 13 to 31 August 2013, at a new rate. The tenant did pay by cheques which were cashed by the landlords on 9 September 2013. The Court of Appeal, affirming the decision of this Tribunal that there was no estoppel, held that for there to be estoppel, the tenant must show a clear and unequivocal representation that there was a new tenancy agreement on the expiry of the old tenancies on 12 August 2013.

66.  Also in Chan Kei Cheung Lloyd v Honest World Limited, DCCJ 576/2014 (unreported, dated 15 August 2014), Deputy District  Judge Josephine Chow at §31 cited Halsbury’s Laws of Hong Kong, Vol 17(1), 2007 Reissue, [235.180] which stated that:

“Questions of so called ‘waiver’ usually arise when some act is done by the landlord after the expiration of a notice to quit which either necessarily or prima facie imports the recognition of an existence tenancy…… In other cases it may be possible to show that the landlord’s act was done with some other intention; and when the evidence is offered, it must be determined, as a question of fact, whether the act was intended to create a new tenancy. …… Payment and acceptance of rent so accrued due implies, however, the concurrence of both parties and may operate to create a new tenancy. The crucial question is always with what intent the rent was paid and accepted, that is to say, whether it was with mutual intention of creating a new tenancy.”

67.  In the present case, I cannot find any evidence of mutual intention of the parties to create a tenancy. The unilateral act of the respondent to deposit $57,000 per month into the account of Silver Joyce after 30 June 2014 cannot amount to unequivocal evidence of a new tenancy. Neither did the David YY Fung’s notice to Silver Joyce on 17 February 2014 expressing the respondent’s intention to continue the tenancy entitle it to have a new/extended tenancy if he has no such right in the first place. Dreamgate is particularly comparable to the present case in that Dreamgate, like the applicant here, acquired the premises in question from the predecessor in title. Following the English Court of Appeal in that case, the notice to quit dated 29 September 2014 sent by Tam to David YY Fung could not assist the respondent if in fact no such tenancy had been granted.

68.  I hold that there is no waiver by Silver Joyce for accepting such payments by the respondent.

If the renewal did come into existence, whether the applicant should be bound by the said renewal that entitles the respondent to have exclusive possession over the Premises as a lawful tenant until 30 June 2016?

69.  Again if I am wrong so that a renewal did come into existence by virtue of the respondent’s exercise on 17 February 2014, the respondent has become a tenant in equity pursuant to the option.

70.  However, section 3(2) of the Land Registration Ordinance provides :

“ All such deeds, conveyances, and other instruments in writing, and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fide purchaser … for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes:

Provided the nothing herein contained shall extend to bona fide leases at rack rent for any term not exceeding 3 years.”

71.  If therefore the option exists, the 2012 agreement would have become a registrable instrument and it had not been registered. In PC Fortune Company Limited & Another v Mastermind Asset Management Limited, CACV 89/2014 (unreported, 12 February 2015), the Court of Appeal, citing Markfaith Investment Limited v Chiap Hua Flashlights Limited [1990] 2 HKLR 84, [1991] 2 AC 43, held that the proviso of section 3(2) would not apply to an instrument insofar as the instrument created an option that extended the tenancy beyond 3 years.

72.  The respondent here does not dispute that the applicant was a bona fide purchaser for valuable consideration but submits that the respondent’s equity interest was created before the applicant acquired his equitable interest through the agreement for sale and purchase on 3 April 2014.

73.  In Power Alliance Investment Limited v Lau Kai Pui, HCA 815 of 2005 (unreported, dated 23 November 2005), a similar situation arose where the predecessor in title of the plaintiff granted to the defendant a 3-year tenancy plus an option to take a tenancy for a further term of 3 years. Recorder Benjamin Yu, SC (“Mr Yu”) held the view that the exercise of the option before the date of the provisional agreement for sale and purchase created a new legal relationship and therefore it would be arguable that the proviso should not be narrowly construed and could apply to an agreement for a lease for a term of not more than 3 years. Mr Yu however stated a caveat, ie had that predecessor in title entered into an agreement to grant a further 3-year lease at market rent before entering into a provisional agreement to sell….

74.  While Mr Yu said that “it would be arguable”, I consider the exercise of the option relates back to the tenant’s prior option which, according to the Court of Appeal in Wellmake Investments Ltd v Chan Yiu Tong [1996] 2 HKLR 44, [1996] 1 HKC 528 (“Wellmake Investments”) , was ‘null and void to all intents and purposes’ as under section 3(2) of the Land Registration Ordinance for want of registration prior to the date of the registration of the subsequent agreement for sale to the purchaser. A fortiori, when the option was exercised, it remained as an agreement for tenancy, which was an unregistered equitable interest. It is therefore also arguable that the purchaser is not bound by anything deriving from the unregistered option or the unregistered agreement for lease when the sale and purchase agreement or the assignment thereafter was subsequently registered; actual notice or constructive notices of the agreement for tenancy is irrelevant as per Wellmake Investments, supra and Kwok Siu Lau v Kan Yang Che [1913] 8 HKLR 52.

75.  Notwithstanding the above, in the present case, both parties have by agreement appointed a valuation expert who has given his opinion that the market rents of the Premises were:

(i) $67,000 per month as on 1 July 2014; and

(ii) $67,500 per month as on 1 October 2014.

76.  Thus, the rent of $57,000 alleged by the respondent under the option or the agreement for tenancy was some 15% lower than market rent and in my opinion, should not be regarded as rack rent for the purpose of the proviso to section 3(2) of the Land Registration Ordinance.

77.  Also, under section 5(1)(a) of the Conveyancing and Property Ordinance,

“no equitable interest in land can be created or disposed of except by writing signed by the person creating or disposing of the same, or by his agent thereunto lawfully authorized in writing, or by will, or by operation of law”

78.  Whereas under section 6(2) of the Ordinance,

“Nothing in section 3 or 5 or in subsection (1) shall affect the creation by parol of leases taking effect in possession for a term not exceeding 3 years (whether or not the lessee is given power to extend the term) at the best rent which can be reasonably obtained without a premium.”

79.  The purported agreement for tenancy alleged by the respondent cannot satisfy this requirement of section 5(1)(a) and is not exempted by section 6(2) of the Ordinance because I consider the $57,000 per month alleged by the respondent is not the best rent.

Mesne Profits

80.  Here, the respondent agrees that if this Tribunal finds in favour of the applicant and rules that the respondent is a trespasser after 30 June 2014, the respondent would not dispute the mesne profits as assessed by the jointly appointed valuation expert.

81.  Therefore, I hold that the respondent has to pay the applicant mesne profits at the rate of $67,500 per month from 1 October 2014 until delivery up of vacant possession.

Orders

82.  Having heard the submissions by the parties, I determine that the respondent is not entitled to remain in possession of the Premises after 30 June 2014 as a lawful tenant. Therefore I make the Orders as follows :   

(1) The respondent do deliver vacant possession of the Premises to the applicant;

(2) The respondent do pay the applicant arrears of mesne profits at the rate of $67,500 per month from 1 October 2014 until delivery up of vacant possession;

(3) The interim payment made by the respondent pursuant to the Order of this Tribunal on 15 December 2014 be released to the applicant as part payment for the mesne profits in (2) above.

Costs

83.  As regards costs, this tribunal fails to see why costs should not follow the event. I also hold that the last day of the trial on 13 August 2015 was useful in allowing the parties to clarify their positions and respond to the written closing submissions provided 3 days earlier.

84.  Accordingly, I make a costs nisi that the respondent do pay the applicant’s costs of the application to be taxed at District Court scale if not agreed, with certificate for counsel.  This is a costs order nisi.  Unless any of the parties apply by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days. 

[1] Page 156 of Bundle.

[2] This section or part of the Ordinance has been repealed by section 3 of the Landlord and Tenant (Consolidation) (Amendment) Ordinance 2004.

[3] Such label as alleged has not been produced by the respondent.

[4] The increase from $28,000 per month to $30,000 per month in the 2008 agreement represents an increase of 7.14% but an increase from $55,000 to $57,000 alleged by the respondent represents only an increase of 3.64%, ie something half of the increase specified in the 2008 agreement.