CHEUNG YU HON v. LUK NGAI LIN IRENE AND ANOTHER

HCA 7588/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7588 OF 2000

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REASONS

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1. This was an appeal by way of re-hearing against the decision of Master Yuen given on 4 April 2001. I delivered judgment on 10 August 2001 and indicated at the time that I would give full reasons later. This I now do.

2. The Plaintiff is the grantee of land under New Grant No.12613. There is a 3-storey building ("the building") erected upon the land by the Plaintiff. The first and second floors of the building are the subject matter of the action ("the property").

3. The Defendants are the operators of a business operating residential care homes for the elderly in various locations in Hong Kong.

4. It is not in dispute that :-

(a) It is a condition of the grant that : "the lot or any part thereof or any building or buildings erected or to be erected thereon shall not be used for any purpose other than non-industrial (excluding residential and godown) purposes"; and

(b) Any contravention of the terms of the grant would entitle the Lessor (the government) to re-enter and take possession of the lot and any buildings thereon.

5. On 11 June 1998 the Plaintiff entered into a Provisional Tenancy Agreement with one "Li Pak Sau (Cambridge Nursing Home)" to let the property to him for a period of three years commencing on 1 July 1998 at a monthly rental of HK$75,000.00 subject inter alia to the following terms :-

Clause 2:	Use of the Property
	Old-aged Home
Clause 10:	Deposit
	Tenant should give landlord 2 months rental as deposit when signing formal tenancy agreement.
Clause 14:	Formal tenancy agreement
	Landlord and tenant should attend the solicitor's firm appointed by the landlord to sign the concerned formal tenancy agreement on or before 24th June 1997 and also pay up deposit and 1st instalment of rental. Tenant shall obtain vacant possession after formal tenancy agreement is signed.
Clause 15:	Special terms
	(i) When signing this provisional tenancy agreement, the tenant had to pay a deposit of HK$100,000.00 to the landlord as provisional deposit. A sum of HK$125,000.00 should be paid as deposit when signing the formal tenancy agreement.
	(iv) Vacant possession of the above rented property will only be delivered after the tenant has signed formal tenancy agreement and has paid up all amounts mentioned above.

6. There then appears just below the signatures of the parties the following :-

"Acknowledgment receipt of HK$100,000.00 from the tenant LI PAK SAU as provisional deposit described as above.

Bank cheque No.899416 Wing Lung Bank Ltd. Acknowledge receipt by Landlord."

7. On 31 July 1998 the Plaintiff and the Defendants entered into the formal Tenancy Agreement ("the Agreement") in respect of the Property. The following provisions are relevant to this action :-

Particulars

Permitted Use : non-domestic use

Clause 3(11) Not to Assign

The Tenant agrees with the Landlord :

Not to assign underlet or otherwise part with the possession of the Property or any part thereof in any way whether by way of subletting lending sharing or other means whereby one person or persons not a party to this Agreement obtains the use or possession of the Property or any part thereof irrespective of whether any rental or other consideration is given for such use or possession and in the event of any such transfer sub-letting sharing assignment or parting with the possession of the Property (whether for monetary consideration or not) this Agreement shall absolutely determine and the Tenant shall forthwith vacate the Property on notice to that effect from the Landlord. This tenancy shall be personal to the Tenant itself and without in any way limiting the generality of the foregoing the following acts and events shall unless approved in writing by the Landlord be deemed to be breaches of this sub-clause :-

(a) In the case of a tenant which is a partnership the taking in of one or more new partners whether on the death or retirement of an existing partner or otherwise.

(b) In the case of a tenant who is an individual (including a sole surviving partner of a partnership) the taking up of the tenancy upon the death, insanity or other disability of that individual by the executors administrators personal representatives next-of-kin trustees or committee of any such individual, or the admission of a new partner or partners.

(c) In the case of a tenant which is a corporation any take-over by other company or persons, amalgamation, merger, reconstruction or liquidation of the Tenant itself.

(d) The giving by the Tenant of a Power of Attorney or similar authority whereby the donee of the Power obtains the right to use possess occupy or enjoy the same.

(e) The change of the Tenant's business name or nature of business without the previous written consent of the Landlord which consent shall not be unreasonably withheld.

Clause 3(16) User

The Tenant agrees with the Landlord :

Not to use or permit or suffer to be used the Property for any purpose other than the Permitted User.

Clause 3(17) Prohibited Uses

The Tenant agrees with the Landlord :

Not to use or permit or suffer the Property to be used for any illegal or immoral purpose.

Clause 3(21) To Observe Other Deeds

The Tenant agrees with the Landlord :

Not to do or suffer any act which shall amount to a breach or non-performance or non-observance of any negative or restrictive covenant contained in the Government Lease or Conditions under which the ground upon which the Building is erected is held from the Crown ................

Clause 3(29) To Comply with Laws

The Tenant agrees with the Landlord :

At the Tenant's expense to comply in all respects with the provisions and requirements of the Building Ordinance, Chapter 123 and the Town Planning Ordinance, Chapter 31 or any statutory modification or re-enactment thereof for the time being in force and any regulations or orders made thereunder relating to the use or occupation by the Tenant hereunder and to indemnify (as well after the expiration of the Term by effluxion of time or otherwise as during its continuance) and to keep the Landlord indemnified against all liability whatsoever including costs and expenses in respect of any contravention thereof.

Clause 5(1) Re-entry on Default

If at any time during the Term :

(b) the Tenant shall fail or neglect to observe or perform any of the agreements stipulations terms and conditions herein contained and on the Tenant's part to be observed and performed,

then and in any such case it shall be lawful for the Landlord at any time thereafter to re-enter the Property or any part thereof in the name of the whole whereupon this tenancy shall absolutely cease and determine but without prejudice to any right of action of the Landlord in respect of any outstanding breach or non-observance or non-performance of any of the agreements stipulations terms and conditions herein contained and on the Tenant's part to be observed and performed and the Landlord's right to deduct all loss damage and proper expense thereby incurred from the Deposit paid by the Tenant in accordance with clause 7 hereof.

Clause 5(4) Non-waiver

Acceptance of rent by the Landlord or any act omission or acquiescence on the part of the Landlord shall not be deemed to operate as a waiver by the Landlord of any right to proceed against the Tenant in respect of any breach non-observance or non-performance of the agreements stipulations terms and conditions herein contained and on the Tenant's part to be observed and performed.

Clause 5(11) No Warranty of User

Nothing in this Agreement or in any consent granted by the Landlord under this Agreement shall imply or warrant that the Property may be used for the purpose herein authorised (or any purpose subsequently authorised) under any legislation or statutory regulations. The Tenant has been advised to consult her own surveyors and/or architects as to ascertain the authorised user of the Property prior to signing of this Agreement.

8. The Tenancy Agreement was executed by the parties in the presence of their respective solicitors. The agreement also acknowledges the receipt of the security deposit from the tenant in the sum of HK$375,000.00.

9. At the time of signing the formal Tenancy Agreement on 31 July 1998, both parties were legally represented in relation to the lease.

10. It is the Plaintiff's case that the provisional agreement was superseded by the formal Tenancy Agreement and that this was the intention of the parties at all material times. It is the Defendants' case that the Tenancy Agreement was to formalize but not replace the provisional agreement.

11. This is a strange argument which I was unable to accept. First, the express written terms of a contract, a fortiori a contract in respect of land, cannot be contradicted by parole evidence. Secondly, it is clear from the different and distinct terms of the provisional and formal agreements that the latter agreement must have been intended to supersede the earlier agreement. To accept the Defendants' arguments would be to accept that the parties deliberately, and with the benefit of legal advice, entered into the formal agreement knowing and intending that some of its terms were not agreed and would not be complied with. It is difficult to see why, in such circumstances, the parties would not have instructed their respective solicitors who drew up the agreement to have incorporated what was in fact agreed and to have excluded what was not. I rejected that argument by the Defendants.

12. The provisional agreement had provided that the tenant could use the premises as an "old-aged home". The formal agreement provided that the permitted user was "non-domestic use" and Clause 5(11) specifically provides no warranty of user by the landlord and advises the tenant to consult her own experts as to authorised user prior to executing the agreement. The Plaintiff says on affirmation that he specifically instructed his solicitors to include Clause 5(11) to reflect the agreement and understanding between the parties that the Defendants were to be responsible for obtaining the necessary permission for their intended use.

13. It is common ground that the parties knew at the time of the provisional agreement that it was the Defendants' intention to operate a residential home for the aged in the premises. It also appears to be common ground that the Plaintiff was prepared to co-operate and perhaps even assist the Defendants in achieving formal change of user to enable them to operate such a home there. The parties are however in conflict over whether the responsibility for securing such change of user was upon the Plaintiff or the Defendant.

14. It is clear from Clauses 3(16) and 3(17) that the Defendants agreed not to use the premises for any purpose other than the permitted user and not to permit the premises to be used for any illegal purpose. It is also clear from Clauses 3(21) and 3(29) that the Defendants agreed not to do anything to affect the grant and to comply, at their own expense, with all relevant statutory provisions and regulations in Hong Kong pertaining to the premises.

15. It is not in dispute that on about 15 July 1998 the Defendants had, through their architects, applied to the Building Department for approval to change the user from shops to a residential care home for the elderly. It is also not in dispute that the Defendants were given notice on 11 August 1998, through their architect Mr. Raymond Cheng, that the proposed plans contravened the Buildings Ordinance and Regulations, and most importantly, that the District Lands Office informed the Defendants that :-

"According to S.C. No.(4) of New Grant No.12613 under which the captioned lot is held, "the lot or any part thereof or any building or buildings erected or to be erected thereon shall not be used for any purpose other than non-industrial (excluding residential and godown) purposes." A lease modification is therefore required for the proposed change of use."

16. The Defendants therefore had notice by 11 August 1998 that the intended user was in breach of the Grant and that the lease would have to be modified to accommodate such user.

17. The Plaintiff, as the grantee of the land and property, was apparently prepared to assist and co-operate by making the formal application for modification, although he stresses that he was under no duty to do so. He appears to have applied to the District Lands Office for change of user on about 16 March 1999.

18. It is not clear what, if any, action followed, but on 18 May 1999 the District Lands Office notified the Plaintiff that upon inspection the premises were found to be used in breach of the terms of the Grant and he was asked to cease and desist under threat of re-entry and recovery of possession by the Grantor. He was also offered a period of forbearance by the Grantor subject to payment of a forbearance fee. That letter was copied to the Defendants by the District Lands Office.

19. The Plaintiff apparently persisted in relation to the change of user - he applied in writing for modification on 27 September 1999 and discussed the matter personally with the District Lands Office on 29 September 1999. His efforts were in vain and on 14 October 1999 he was advised by the District Lands Office that consideration would only be given to his application if he could overcome the objections by local residents to the proposed change of user.

20. The Plaintiff thereafter paid forbearance fees to the government on various occasions pending resolution of the problem. The Defendants refused to make any contribution towards the same.

21. By Clause 5(1) of the Tenancy Agreement the Plaintiff was entitled to re-enter and determine the lease in the event of the Defendant failing to observe any of the terms of the Agreement. By Clause 3(16) of the Agreement the Defendants agreed not to use the premises other than in accordance with the permitted user.

22. Thus on 19 June 2000 the Plaintiff gave notice to the Defendant of forfeiture unless the breach of user ceased immediately.

23. The Defendants rely upon waiver and acquiescence. They claim that the Plaintiff knowingly consented to their user in breach of the Grant and that he took no or no sufficient steps to modify the Grant. They further assert that by acceptance of rent the Plaintiff has waived his rights under the Tenancy Agreement.

24. By Clause 5(4) of the Tenancy Agreement any acceptance of rent or any omission or acquiescence by the landlord shall not operate as a waiver or estoppel in respect of any breach by the tenant of any of the terms of the Agreement.

25. It is clear that the user as a home for the elderly was in breach of the terms of the Grant and notice to that effect was given by the District Lands Office on 11 August 1998. In defiance of that notice, the Defendants persisted in the breach. In defiance of notice from the Plaintiff to cease and desist, the Defendants persisted in the breach. In the circumstances of various notices by the Plaintiff to the Defendants of the breach and its consequences in terms of the Grant and the forbearance fees being paid, I was satisfied that the Plaintiff had not acquiesced in the breach. I was also satisfied that by reason of Clause 5(4) that the Plaintiff had not waived his rights under the Tenancy Agreement.

26. I was therefore satisfied that the Plaintiff was entitled to forfeit and re-enter and that there should therefore be an Order in terms of the Order of Master Yuen.

27. The Plaintiff, however, relies upon yet another limb in support of his forfeiture and re-entry for breach by the Defendants.

28. By the Tenancy Agreement executed on 31 July 1998 the premises was let to the Defendants as named in the Writ. On the second page of the Agreement under "Particulars" the Tenant is defined as :

"LUK NGAI LING IRENE and LUK NGAI SI ICY together trading in partnership under the style or firm name of CAMBRIDGE NURSING HOME (B.R. No.13047623-000-04-98-5) a firm carrying on business at 3rd Floor, Wing Shing Building, No.7 Cross Lane, Wan Chai, Hong Kong"

29. Clause 3(11) of the Tenancy Agreement contains the tenant's agreement not to assign or part with possession and it is couched in stringent terms to include "means whereby one person or persons not a party to this Agreement obtains the use or possession of the Property or any part thereof irrespective of whether any rental or other consideration is given for such use or possession ........ (whereupon) this Agreement shall absolutely determine and the Tenant shall forthwith vacate the Property on notice to that effect from the Landlord."

30. The sub-clause continues that "This tenancy shall be personal to the Tenant itself" and then defines acts which, unless approved in writing by the Landlord, shall be deemed to be breaches. By Clause 3(11)(d) and (e) this includes :

"(d) The giving by the Tenant of a Power of Attorney or similar authority whereby the donee of the Power obtains the right to use possess occupy or enjoy the same.

(e) The change of the Tenant's business name or nature of business without the previous written consent of the Landlord which consent shall not be unreasonably withheld."

31. It is not in dispute that no consent was sought by the Defendants pursuant to this clause and no consent was given by the Plaintiff to the matters that he now complains of in this regard.

32. There is no dispute that the partnership business (which is the Defendant and the Tenant under the Tenancy Agreement) ceased to hold a business registration between 20 February 1999 and 18 January 2001. The Defendants say that this was due to an oversight by their accountants which they have now corrected.

33. There is also no dispute that the Licence to operate the home on the premises was granted by the Director of Social Welfare to Fanling Cambridge Nursing Home Limited ("FCNHL").

34. There is also no dispute that FCNHL, which was incorporated on 14 April 1999, operates the residential care facility at the premises.

35. The Defendants say that, as a matter of administrative convenience, they chose to incorporate the business and that they fully intended to maintain the Defendant partnership business as a registered entity at the premises as well. They say that it is only a matter of semantics since the business is the same as before in every other respect.

36. A residential care home for the elderly may only be operated, kept and managed by a person authorized by the Director of Social Welfare pursuant to Section 8(4)(c) of the Residential Care Homes (Elderly Persons) Ordinance, Cap.459. HCNHL must therefore be the body operating, keeping and managing the business carried on at the premises.

37. A companies search in respect of FCNHL shows that the two named Defendants are neither directors nor shareholders in FCNHL although Luk Ngai Si Icy was the Presentor and Company Secretary in April 2000. Li Pak Sau, who signed the Provisional Agreement on 11 June 1998, is one of the directors.

38. Even if, as the Defendants maintain, they authorized the business to be operated nominally by FCNHL whilst maintaining control of it themselves, they cannot overcome the provisions of Clause 3(11)(d) of the Tenancy Agreement which precludes the giving of authority to anyone other than the named tenant to "use possess occupy or enjoy" the property.

39. Even if, as the Defendants claim, the change is only nominal, they fall squarely within Clause 3(11)(e) which precludes the "change of the Tenant's business name or nature of business without the previous written consent of the Landlord."

40. The transfer, even in the most pedantic sense, of the business and licence and business registration was sufficient to bring the Defendants within the net of Clause 5(1) entitling the Plaintiff to forfeit and re-enter. The Plaintiff gave notice to that effect through his solicitors on 1 November 2000. I am satisfied that he was entitled and did terminate the lease under the Agreement of 31 July 1998.

41. I therefore gave judgment for the Plaintiff and dismissed the appeal against the Order of Master Yuen. I also made an order as to costs.