UNITED MERIT DEVELPMENT LTD v. GOLDEN CROWN INDUSTRIES LTD

LDPE 1060 - 1062/2013
(Consolidated)

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 1060 of 2013

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BETWEEN

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APPLICATION NO. LDPE 1061 of 2013

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BETWEEN

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APPLICATION NO. LDPE 1062 of 2013

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BETWEEN

(Consolidated pursuant to the Order made by Member W. K. LO dated 22^nd November 2013)

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DECISION

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1.  On 14March 2014, I handed down my judgmentordering, inter alia, that the respondent do deliver vacant possession of the Premises to the applicants and pay mesne profits from 13August 2013 until delivery up of vacant possession (“my judgment”).

2.  This is the respondent’s application for leave to appeal against myjudgment and for stay of execution for the delivery of vacant possession until further order. After hearing the parties on this application on 2 May 2014, I refused to give leave to the respondent to appeal but allowed the application for stay of execution for two months, with reasons to be handed down in writing.  I now do so.

The application for leave to appeal

3.  The law applicable to the leave application is trite:

(a) A party may only appeal to the Court of Appeal against a judgment, order or decision of the Lands Tribunal on the ground that such judgment, order or decision is erroneous on point of law: section 11(2) of the Lands Tribunal Ordinance (“LTO”).

(b) No appeal may be made under section 11(2) unless leave to appeal has been granted by the Lands Tribunal or the Court of Appeal: section 11AA(1) of the LTO.

(c) Leave to appeal shall not be granted unless the court is satisfied that either (i) the appeal has a reasonable prospect of success; or (ii) there is some other reason in the interests of justice why the appeal should be heard: section 11AA(6) of the LTO.

4.  The respondent’s application is accompanied by a Draft Notice of Appeal which contains 21 grounds of appeal. According to Mr Jason LH Wong (“Mr Wong”), counsel for the respondent, these 21 grounds of appeal can be summarized into two main aspects: I should have found that a contract for new tenancy was created when

(i)   on 13 August 2013, Mr Lee Ying Wai Lawrence (“Mr Lee”), the Attendant Manager of the respondent responded to the Notices of Expiry of Tenancy sent by the applicants over the phone; or alternatively

(ii)  on 22 August 2013, the applicants issued debit notes to the respondent demanding new rentals for September 2013 as well as the balance of the new rentals for August 2013 (“the Debit Notes”).

5.  The above goes all the way back to the short point that I asked at §37 of my judgment: whether the respondent and the applicants had ever come into a binding new agreement for new tenancies at the material time.

Notices of Expiry of Tenancy

6.  I shall not repeat the particulars of the case save to mention that just prior to the expiry of the previous tenancies (hereinafter referred to as “the 2010 Tenancy Agreements”), the applicants, as former landlord, through their leasing agent, sent to the respondent as former tenant of the three premises (collectively “the Premises”) three Notices of Expiry of Tenancy. In the present application, the respondent firstly complains that on a true construction of the terms of the respective Notices of Expiry of Tenancy, I was wrong to find that the Notices of Expiry of Tenancy were invitations by the applicants for the respondent to make a formal application for a renewal of tenancy. The respondent submits that I ought to have found that the Notices of Expiry of Tenancy were offers by the applicants for the renewal of the the 2010 Tenancy Agreements.

7.  Further or alternatively, the respondent complains that having accepted or considered the evidence of Ms Fok, the Leasing Manager of the leasing agent of the applicants, that the return of the Notices of Expiry of Tenancy was a crucial step for the applicants and that thereafter the respondent would be required to enter into formal tenancy agreements, I was wrong to have found that the Notices of Expiry of Tenancy was only invitation to treat. I should have found that the applicants intended to enter into binding agreements with the respondent.

8.  As submitted by Ms Debora SY Poon (“Ms Poon”), counsel for the applicants, however, I have considered all the available evidence in coming up with my decision in my judgment. Inter alia, although terms of new tenancies were contained in the Notices of Expiry of Tenancy, the Reply Slips at the bottom of the Notices of Expiry of Tenancy purposely left in blank the end date of the tenancies and the amount of new rent to ascertain the wish of the respondent. This is distinguished from the situation that a simple “acceptance” is expected in case of an offer.

9.  Although Mr Wong reminds me that the directors of the applicants or the one who drafted the Notices of Expiry of Tenancy was not called to give evidence for the real intention of the Notices of Expiry of Tenancy, I do not consider it is necessary so long as I accept it was Ms Fok who was carrying out her duty to ascertain the wish of the respondent in renewing the tenancies. I accepted Ms Fok’s evidence that even if the respondent did return the Reply Slips in time, the respondent would be required to enter into formal tenancy agreements as such a requirement was expressly stated in Clause 1(6) of the Notices of Expiry of Tenancy. See §12 of my judgment.

10.  Recently, in Duval Marine Maud Anne Aurore & Another v. Christian Anthony Bullen, HCSA 49 of 2013 (unreported, dated 14 April 2014), the defendant, in enquiring inter alia whether or not the 1^st and 2^nd claimants would like to renew the licence, emailed to them a draft licence agreement stating that “nothing is binding on the parties until the new agreement is signed.” Deputy Judge Ng upheld the Adjudicator’s ruling that the defendant intended not to be bound until the licence agreement was signed. In the present case, there was even no evidence that any draft tenancy agreements were forthcoming when the respondent alleged that Mr Lee had obtained the “OK” from Ms Fok over the phone on 13 August 2014. Like the Duval Marine Maud Anne Aurore case, there was no evidence that the clearly stated necessity to sign the formal tenancy agreement as required by Clause 1(6) had been waived or expunged in any of the telephone communications between Ms Fok and Mr Lee. On the one hand, Ms Fok maintained in her evidence that if the applicants agreed to the proposal for renewal, she would have asked her colleagues to draft and engross a fresh tenancy agreement and invite the prospective tenant ie the respondent to attend her office for signing the formal tenancy agreement. On the other hand, it was also Mr Lee’s evidence (which was however denied by Ms Fok) that when he called Ms Fok after receiving the Debit Notes for September 2013, he was assured that the new tenancy agreements were forthcoming[1]; he was still expecting the new tenancy agreements to be signed.

11.  There was no evidence that if the Reply Slips had been returned, in time or otherwise, the applicants “clearly intended”, as the respondent suggested, to enter into binding tenancy agreements with the respondent or that the applicants were bound to enter into new tenancy agreements with the respondent. This is consistent with the evidence of Ms Fok as stated in §42 of my judgment that the applicants did not take it seriously that the respondent had to return the Reply Slips by 20 July 2013 (for Shop E), 23 July 2013 (for Shop D) and 22 July 2013 (for Shop C) respectively because the applicants had never considered that they were offers for acceptance.

12.  Whereas Mr Wong refers also to Clause 1(7) of the Notices of Expiry of Tenancy requiring payment of an administration fee to the 2nd applicant together with half of the stamp duty of the tenancy agreement, I reminds him that the clause did not suggest any immediate payment and in any event, there is no evidence that the parties had ever discussed the time of payment of the administration fee or the increase in rental deposits.

13.  Incidentally an entire agreement clause similar to that referred to by Deputy Judge Ng in the Duval Marine Maud Anne Aurore case is also found in Clause 34 of the 2010 Tenancy Agreements:

“此租約已闡示雙方在此租約之所有協議. 雙方簽立此租約即取代之前臨時或預備租約; 或雙方簽立此租約之時或之前所作有關於此租約或承租物業之任何承諾、協議、陳述或共識無論書面或口頭、或部份書面或部份口頭. 由簽立此租約即日起所有之承諾、協議、陳述或共識即停止並不再有任何作用.”

14.  Such an entire agreement clausealso appeared in the earlier tenancy agreements between the parties in 2007. This serves to negate the evidence of Mr Lee that there existed any parties’ custom to come to binding agreement on the important terms before signing the formal tenancy agreements save the instance in 2010 where option for renewal reserved in earlier tenancy agreements in 2007 was duly exercised by the respondent for a term of 3 years commencing from 13 August 2010 to 12 August 2013.

15.  In my view, my findings that the Notices of Expiry of Tenancy were mere invitations to treat and that the negotiations subsequent thereto were ongoing on the basis that nothing shall be binding between the parties until the new formal tenancy agreements were signed are not matters of law but matters of fact.

Debit Notes Issued to the Respondent on 22 August 2013

16.  It is also the respondent’s argument that the Debit Notes issued to the respondent on 22 August 2013 after the 2010 Tenancy Agreements’ expiry on 12 August 2013 were pursuant to new tenancy agreements between the parties.

17.  I have stated in §54 of my judgment that it might not be necessarily the case, citing for instance the English Court of Appeal’s judgment in Dreamgate Properties Ltd v. Arnot [1998] 76 P&CR 25.

18.  Mr Wong tries to distinguish the present case from Dreamgate by insisting, for example, somebody did initial on the Debit Notes as well as the Official Receipts sent on 23 August 2013 (for Shop E) and 26 August 2013 (for Shop C and Shop D) for the August 2013 payments. However, I accepted Mr Fok’s evidence that the Debit Notes had to be generated in advance before the due date for payment of rent to the tenant as a reminder for the payment unless and until vacant possession of the Premises had been duly delivered. Despite Mr Wong’s argument on human intervention in the present case, I consider the fact that the Debit Notes generated by computer in the accounting system of the applicants is material to an objective judgment of the applicant’s intention. See §55 of my judgment.

19.  More importantly, as stated in §56 of my judgment, I accept that Clause 27 in Part 1 of the 2010 Tenancy Agreements stated expressly market rent was required to be payable if the tenant holds over the Premises when the tenancy has expired. Clause 5 of the Notices of Expiry of Tenancy also stated new rent based on market rent has to be paid if the tenant holds over.

20.  In Erimus Housing Limited v Barclays Wealth Trustees (Jersey) Limited & Another [2014] EWCA Civ 303 (dated 18 March 2014), the English Court of Appeal stated at §23 of its judgment:

“When a party holds over after the end of the term of a lease he does so, without more, as a tenant on sufferance until his possession is consented to by the landlord. With such consent he becomes at the very least a tenant at will and his continued payment of the rent is not inconsistent with his remaining a tenant at will even though the rent reserved by the former lease was an annual rent. The payment of rent gives rise to no presumption of a periodic tenancy. Rather, the parties' contractual intentions fall to be determined by looking objectively at all relevant circumstances.” (emphasis added)

21.  Thus I accepted the applicants’ submission that when the Debit Notes referred to “New Rent” for the period from 13 August 2013, it did not suggest a new tenancy agreement was in place. The use of the term “New Rent” cannot be an unequivocal statement of intention to be bound. As submitted by the applicants, it cannot be the case that 2010 Tenancy Agreements would be automatically renewed if the respondent failed to respond by the deadlines or the Notices of Expiry of Tenancy would have been devoid of any practical purpose.

22.  In addition, Mr Lee gave evidence that when he received the letters dated 24 August 2013 from the applicants demanding the respondent to yield vacant possession of the Premises, he was assured by Ms Fok that her company had made a mistake and that he could ignore it. This was contrasted by Ms Fok’s evidence of denial. As stated in §59 of my judgment, I found Mr Lee’s version was incredible or contradicted by contemporaneous documents or circumstances. These letters of 24 August 2013 were so conflicting with his understanding from the Debit Notes dated 22 August 2013 or the response from Ms Fok (if his version were to be believed) that he should have tried to put the record straight or made a written protest. He could not put up any evidence apart from mere assertion.

23.  Apart from the Debit Notes of 22 August 2013, the respondent can point to no other evidence of new tenancy agreements. On the contrary, the applicants had on 9 October 2013 sent letters to the respondent together with Revised Debit Notes clarifying that any payment made should be regarded as mesne profits instead of rentals for new tenancies; the letters also stated the Debit Notes previously sent could not be regarded as renewal of the 2010 tenancies and the respondent was requested to deliver up vacant possession of the Premises forthwith on 26 September 2013. See §60 of my judgment.

24.  In the present applicant for leave to appeal, Mr Wong also raises the contra proferentum rule, citing for instance, Taylor v. Allon [1966] 1 QB 304. But as recorded in my judgment, both parties actually gave evidence which was considered and it has been my findings that:

(1) The Reply Slip at the bottom of the Notices of Expiry of Tenancy did not indicate the end date of the proposed tenancies, if any nor the amount of new rentals;

(2) Clause 1(6) of the Notices of Expiry of Tenancy expressed the necessity to sign the formal tenancy agreement;

(3) After receiving the Notices of Expiry of Tenancy, the respondent counter-proposed lower rentals;

(4) Even if the Notices of Expiry of Tenancy constituted offers, the respondent failed to return the same before the respective deadlines;

(5) The telephone conversation between Ms Fok and Mr Lee were mere negotiations subject to signing of the formal tenancy agreements under Clause 1(6) of the Notices of Expiry of Tenancy;

(6) On the other hand, Ms Fok’s evidence, which I accepted, was that she represented to Mr Lee that she would only pass any proposal to the applicants for their final decision.

(7) The use of the term “New Rent” in the Debit Notes cannot be an unequivocal statement of intention to be bound but subject to be determined by looking objectively at all relevant circumstances.

25.  On the above analysis however where I found noambiguity in the construction of the Notices of Expiry of Tenancy or the Debit Notes of 22 August 2013 based on the assessment of the evidence, credibility of the witnesses included, I do not consider the principle of contra proferentum is applicable. Neither did I find there was any contract or preliminary arrangement which may be enforceable because there were no meetings of mind between the parties.

26.  Other complaints or grounds of appeal relied on by the respondent, including whether Ms Fok had ostensible authority to enter into a binding agreement on behalf of the applicants are either secondary issues or only challenging my findings of fact; the respondent was just repeating his points already taken at trial.

27.  I agree with Ms Poon’s submission that the burden is on the respondent rather than the applicants to prove that such binding agreement existed and the respondent has failed to discharge its burden to make good its own case.

28.  Summing up, since all the grounds raised by the respondent as the grounds of appeals were mainly the “findings of facts” forming the basis of my judgment of 14March 2014, and more importantly, were not issues in the “point of law”, I cannot see how the respondent should be given the leave to appeal. 

29.  In this regard, Mr Wong cites Kwong Miles Services Limited v Commissioner of Inland Revenue [2004] 3 HKLRD 168; (2004) 7 HKCFAR 275, suggesting that “intervention in an appeal on law only is not confined to instances in which it is apparent on the face of the record that the determination appealed against resulted from a specifically identifiable error of law.” Yet in §37 of the judgment, Bokhary PJ also said: “If the fact-finding tribunal’s conclusion is a reasonable one, the appellate court cannot disturb that conclusion even if its own preference is for a contrary conclusion.” More recently in Pang Ketian Sally v Tam Yuk Hung Annie, CACV 147 of 2013 (unreported, dated 25 April 2014) the Court of Appeal also affirmed at §32 that: “To challenge such a finding of primary fact, the appellant must succeed in persuading this court that the finding is “plainly wrong” ”

30.  In addition, after considering what Mr Wong presented in his Inter Parte Summons supporting this interlocutory application, and after hearing what he supplemented in his oral submission, I decided that the respondent’s intended appeal has no reasonable prospect of success, and the respondent failed to satisfy that there is some other reason “in the interests of justice” why the appeal should be heard. 

Staying of the Order of Possession

31.  Notwithstanding my dismissal of his application for leave to appeal, I also considered whether stay of execution of possession of the Premises should be given to the respondent.  The respondent had produced an affirmation of Mr Lee together with this interlocutory application. More particularly, Mr Lee emphasized that the Premises are being occupied by the respondent as a video game centre. If the respondent moves or relocates the video game centre to new premises, a new license is required to be obtained from the Office of the Licensing Authority, Home Affairs Department. At the trial on 28 February 2014, he gave evidence that it would take about 4 weeks to obtain the new license. He confessed that was an understatement because there were many factors that would prolong the process. All in all, it would be very difficult to find an alternative location that may meet the stringent requirements imposed by the licensing authority.

32.  During the hearing on 2 May 2014, Mr Wong confirmed that the respondent was applying for an extension of the stay for two months only. Here Mr Wong refers to Star Play Development Ltd. v. Bess Fashion Management Co. Ltd. [2007] 5 HKC 84. In general the Court in deciding whether to stay the execution of a judgment or not will consider factors such as whether the absence (or existence) of a stay would render an appeal nugatory (thus bringing into focus the relative prejudice that may be caused to the appellant and to the respondent by a stay of execution), and the merits of the appeal.  Mr Wong also pointed to the affirmation by Mr Lee above had not been challenged by the applicants. On the other hand, the respondent has been paying the “New Rent” for the Premises as stated in the Notices of Expiry of Tenancy; ie the applicants had suffered no real loss and would not be prejudiced by the stay. In contrast, the failure to obtain a stay would have a serious deleterious effect on the respondent’s business; the respondent stands to shut down its business completely with nowhere to host or to operate the game machines during the interim period.

33.  As said, the applicants had not put forward any challenge against Mr Lee’s affirmation. On behalf of the applicants, Ms Poon only submitted that the applicants are prepared to sell the Premises with vacant possession so as to take advantages of the prevailing market sentiment. No proof or document however has been produced in support.

34.  Having considered the parties’ submissions, I decidedthat a  further stay for two months only should not affect the applicants’ plan to sell the Premises as the applicants can still continue to market the Premises during the interim period. The two-month period is not too long and might have also been granted if Mr Lee had not understated the difficulty in obtaining video game license for new premises at the original trial. Therefore I decided to exercise my discretion to extend the stay stated in the Tribunal’s order of 14 March 2014 for another two months, ie until 14 July 2014.

Costs

35.  As I have dismissedthe respondent’s application for leave to appeal,I order the respondent to pay the applicants’ costs of the application to be taxed on District Court scale if not agreed with certificate for counsel.

[1] See §31-32 & 48 of my judgment.