CORN HOUSE COMPANY LTD v. YEUNG TAK WAH DENNY

DCCJ 6500/2019

[2024] HKDC 443

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 6500 OF 2019

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BETWEEN

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JUDGMENT

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I. Introduction

1.  This trial concerns a Tenancy Agreement entered into between the Plaintiff, Corn House Company Limited (粟米屋有限公司), and the Defendant, Mr Yeung Tak Wah Denny (楊德華), dated 10 April 2016 (“the Tenancy Agreement”).

2.  By the Tenancy Agreement, the Defendant leased a village house at No 4 Eight Street, Tai Wai Village, Sha Tin (“the Premises”) to the Plaintiff. The Premises is a 3-storey house located in Tai Wai Village, registered in the Land Registry as “LOT NO. 708 IN D.D. 180”.

3.  The Plaintiff contends that it entered into the Tenancy Agreement as a result of the Defendant’s misrepresentation that the Premises allows commercial use and use as a shop. Alternatively, for the same reason, the Defendant was in breach of the Tenancy Agreement. The Plaintiff terminated the Tenancy Agreement on 8 October 2016 by delivering vacant possession of the Premises to the Defendant. The Plaintiff claims against the Defendant for damages for misrepresentation, or alternatively, for breach of the Tenancy Agreement.

4.  The Defendant denies that he has made any misrepresentation to the Plaintiff. Further, the Defendant denies that the Plaintiff has relied on the representation in entering into the Tenancy Agreement. The Defendant contends that the Plaintiff was the party which committed repudiatory breaches of the Tenancy Agreement for wrongfully terminating the Tenancy Agreement and failing to reinstate the Premises when the Plaintiff deliver the Premises to the Defendant. The Defendant counterclaims against the Plaintiff for loss and damages.

II. The parties’ case

The Plaintiff’s case

5.  Mr Wong Man Piu (“Mr Wong”) and Ms Wong Oi Ping (“Ms Wong”) were at all material times the shareholders and directors of the Plaintiff. Mr Wong is Ms Wong’s elder brother.

6.  In early April 2016, the Plaintiff was looking for a premises in Shatin for carrying on the business of selling fast food. The Plaintiff noticed that the Premises was vacant for lease. Ms Wong of the Plaintiff then made inquiries with Sincere Way Property Agency (“the Property Agency”).

7.  The Plaintiff pleaded that there were 2 inspections of the Premises on or before 6 April 2016:

(a) During the first inspection (“the First Inspection”), Ms Wong told an estate agent of the Property Agency that the Plaintiff would use the ground floor of the Premises as a shop for selling fast food and would apply for a food factory licence from the Food and Environment Hygiene Department (“FEHD”) (“the Intended Use”). The estate agent represented that the Premises was for commercial use and that it should not be a problem for the Intended Use.

(b) During the second inspection (“the Second Inspection”), both Ms Wong and Mr Wong inspected the Premises in the presence of the estate agent and a Mr Tsang Wai Kit (“Mr Tsang”) of the Property Agency. During the inspection, Ms Wong and Mr Wong informed the estate agent and Mr Tsang again that the Plaintiff would use the Premises for the Intended Use.

8.  On 6 April 2016, Mr Wong on behalf of the Plaintiff entered into a Provisional Tenancy Agreement with the Defendant for renting of the Premises. Pursuant to the Provisional Tenancy Agreement, the Plaintiff paid a preliminary deposit of HK$20,000 to the Defendant.

9.  On 10 April 2016, the Plaintiff entered into the Tenancy Agreement with the Defendant. Ms Wong, Mr Wong, Ms Wong and Mr Wong’s sister Ms Wong Oi Ling, Ms Wong’s boyfriend Mr Lam Wai Hung and a friend were present.

10.  Before the parties signed the Tenancy Agreement, the Defendant and Mr Tsang were aware that the Plaintiff would rent the Premises for the Intended Use.

11.  With an aim to induce the Plaintiff to enter into the Tenancy Agreement, when Mr Tsang explained Clause 1 of Schedule II that the Plaintiff should not use or permit to be used the Premises or any part thereof for any purpose other than for “shop” (商店), the Defendant by himself and through Mr Tsang represented to Mr Wong and Ms Wong that the Premises could be used for commercial purposes (“做得商業用”) (“the Representation”).

12.  Induced by the Representation, the Plaintiff entered into the Tenancy Agreement.

13.  The Tenancy Agreement contained, inter alia, the following express terms:

(a) The term of the tenancy shall be for 2 years, from 9 May 2016 to 8 May 2018: see Schedule I.

(b) The rental shall be HK$39,800 per month: see Schedule I.

(c) The security deposit shall be HK$119,400: see Schedule I.

(d) Clause 4: “The Tenant shall comply with all ordinances, regulations and rules of Hong Kong and shall observe and perform the covenants, terms and conditions of the Deed of Mutual Covenant and Sub-Deed of Mutual Covenant (if any) relating to the Premises. The Tenant shall not contravene any negative or restrictive covenants contained in the Government Lease(s) under which the Premises are held from the Government.

租客須遵守香港一切法律條例和規則及該物業所屬的大廈有關的公契內的條款。租客亦不可違反屬該物業地段内的官批地契上的任何制约性條款。”

(e) Clause 6: “The Tenant shall during the Term keep the interior of the Premises in good and tenantable repair and condition (fair wear and tear and damage caused by the inherent defects excepted) and shall deliver up vacant possession of the Premises in the same repair and condition on the expiration or sooner determination of this Agreement.

租客在租约期內保持物業內部的維修狀態良好（自然損耗及因固有的缺陷所產生的損壞除外）並須於租約期滿或終止時將物業在同樣的维修状下交吉交回業主。”

(f) Clause 7: “The Tenant shall pay to the Landlord the Security Deposit set out in Schedule I for the due observance and performance of the terms and conditions herein contained and on his part to be observed and performed. Provided that there is no antecedent breach of any of the terms and conditions herein contained, the Landlord shall refund the Security Deposit to the Tenant without interest within 7 days from the date of delivery of vacant possession of the Premises to the Landlord or settlement of any outstanding payment owed by the Tenant to the Landlord, whichever is later…”

“租客須交予業主保証金 (金額如附表一所列) 作為保証租客遵守及履行此租約上租客卬需遵守及履行的條款的按金，若租客在租期內並無干犯此合約內任何條款，則業主須於收回交吉的物業或一切租客欠款後 (以較遲者作準) 七天內無息退還該按金予租客。…”

(g) Clause 12: “The Landlord and the Tenant agree to be bound by the additional terms and conditions contained in Schedule II (if any).

業主及租客雙方同意遵守附表二内的附加條款（如有的話）。”

(h) Schedule II provided, inter alia, that:

“1. User 用途

…

租客除將物業作商店用途外（例如：住宅/商業/辦公室/商店/工業），不可將該物業或其任何部分作其他用途。^[1][“the Restriction of Use Clause”]

…

Remarks: …

備註：租客需將租金存入業主銀行戶口號碼：業主己茲收到首月之租金$39,800

2. 本合約租期為兩年，首兩年死約，次兩年生約。生約期間加租HK$3,000（死約後自動續生約）

3. 簽正式租約後，租客將會清走單位內無用的傢俬。將來舊租客不得借故取回單位內任何物品及租客不會拆去單位內任何間隔及固定裝修（除得到業主同意外）

4. 如申請有關牌照，就2樓的鋁窗如有關部門需要清拆，業主同意租客配合有關之清拆事宜。

5. 租客負責以上設備之維修保養。（保養）”

14.  Further, as the Plaintiff entered into the Tenancy Agreement based on the inducement of the Representation, the Representation should be inferred as intended by the parties to be a warrant and a term/ condition of the Tenancy Agreement (“the Implied Condition”).

15.  Pursuant to the Tenancy Agreement, the Plaintiff paid HK$139,200 to the Defendant, being the balance of the security deposit and advance payment of the rental for May 2016 (HK$99,400[2] + HK$39,800[3]).

16.  While the Plaintiff engaged Messrs Big Job Design Co Ltd (“Big Job”) to provide services in relation to the Plaintiff’s application to the FEHD for the food factory licence, Big Job’s service did not include any investigation into the permitted land use of the Premises and the Plaintiff did not rely on Big Job on the issue regarding the permitted land use of the Premises. Big Job inspected the Premises once on 6 April 2016 for the purposes of preparing the job quotation. On 17 April 2016 (after the Tenancy Agreement was entered into), the Plaintiff engaged Big Job.

17.  In around the end of May 2016, the Plaintiff applied to the FEHD for a food factory licence.

18.  After the renovation of the Premises, the Plaintiff commenced business to sell fast food on 8 June 2016 as a trial run.

19.  By a letter dated 23 June 2016, the FEHD informed the Plaintiff that its application for the food factory licence was objected by the Director of Planning for the following reasons:

“The [Premises] falls within an area zoned ‘Village Type Department’ (‘V’) on the approved Sha Tin Outline Zoning Plan (OZP) No. S/ST/32. The captioned food factory is regarded as ‘Shop and Services (Fast Food Shop)”. According to the Notes of the OZP, ‘Shop and Services (Fast Food Shop)’ use within the ‘V’ requires planning permission from the Town Planning Board (TPB). As per your memo dated 17.5.2016 enclosing a memo from DLO/ST dated 10.5.2016, DLO/ST confirms that the subject premises is not a New Territories Exempted House (NTEH). Hence, planning permission is required from the TPB for the captioned food factory at the [Premises]” (Emphasis added) (“the Objection”)

20.  According to the “Village Type Development” part of the Explanatory Statement of the Approved Sha Tin Outline Zoning Plan (“the Explanatory Statement”):

(a) A premises within the “Village Type Development” zone is always permitted for the following use:

(i) Agricultural Use;

(ii) Government Use (Police Reporting Centre, Post Office only);

(iii) House (New Territories Exempted House only);

(iv) On-Farm Domestic Structure;

(v) Religious Institution (Ancestral Hall only); and

(vi) Rural Committee/Village Office

(b) If the premises within the “Village Type Development” zone is a New Territories Exempted House, its ground floor is always permitted for use as “Shop and Services (Fast Food Shop)”.

21.  Thereafter, while the Defendant applied to the Town Planning Board on about 1 August 2016 for planning permission for the Premises to be used for “Shop and Services (Fast Food Shop)”, the application was rejected.

22.  The Plaintiff made a subsequent application to the FEHD on 2 September 2016 for the food factory licence, but the application was rejected based on the Objection.

23.  On or about 15 September 2016, Ms Wong made an inquiry with the Planning Department and was informed that the Defendant’s application for planning permission for the Premises to be used for “Shop and Services (Fast Food Shop)” was rejected.

24.  Contrary to the Defendant’s contention, the Defendant has never called Ms Wong of the Plaintiff to inform her about any waiver fee to be paid to the Government for the above planning permission.

25.  By letter dated 5 October 2016, the Plaintiff’s solicitors informed the Defendant that the Tenancy Agreement was terminated with effect on or before 8 October 2016 (“the 5 October 2016 Letter”).

26.  On 8 October 2016, the Plaintiff moved out of the Premises and delivered the keys of the Premises to the Defendant.

27.  The Plaintiff claims that the Defendant himself and through his agent Mr Tsang made the Representation recklessly, not caring whether the Representation was true or not.

28.  The Plaintiff relies on Sections 2 and 3 of the Misrepresentation Ordinance (Cap 284) (“the Ordinance”) to claim rescission and damages.

29.  Alternatively, as the Premises was not permitted for commercial use as a shop, the Defendant was in breach of the Implied Condition. The Plaintiff claims against the Defendant for loss and damage arising therefrom.

The Defendant’s case

30.  The Defendant denies the Plaintiff’s claim and counterclaims against the Plaintiff for wrongful termination of the Tenancy Agreement and failure to reinstate the Premises.

31.  The Defendant says that during the First Inspection and the Second Inspection, neither the representative of the Property Agency nor Mr Tsang represented to the Plaintiff that the Premises allows commercial use or that there should be no problem for the Intended Use. Even if the representative of the Property Agency or Mr Tsang did say so, they were not acting as the Defendant’s agent and did not have authority from the Defendant to make such statements.

32.  At or before the signing of the Provisional Tenancy Agreement, the Defendant orally told Mr Wong of the Plaintiff that (“the Reminders”):

(a) The Defendant as landlord is not responsible for the application or successful application for the requisite licence/ permission for the business which the Plaintiff intended to run;

(b) The Plaintiff was required to apply for the requisite licence/ permission itself while the Defendant as landlord would be willing to give the necessary assistance in such application;

(c) The Plaintiff as tenant was required to run lawful business and run business lawfully in the Premises; and

(d) It was up to the Plaintiff to decide whether to apply for the licence/ permission.

33.  While the Defendant denied that he or Mr Tsang had made the Representation in his Defence and Counterclaim[4], in his written closing submissions dated 19 September 2023, he eventually admits that “It is undisputed evidence that [the Defendant] and [Mr Tsang] did make the utterances of saying that the Premises was for commercial use (the ‘Utterances’) and that [the Defendant] did not stop [Mr Tsang’s] Explanation [of the Restriction of Use Clause] on 10^th April 2016 before the signing of the [Tenancy Agreement]”[5].

34.  The Defendant maintains that he was not aware of the Plaintiff’s Intended Use at the time when he made the above statement. The Defendant contends that as he was not aware of the Intended Use, there was no reason for him to stop Mr Tsang when he was explaining the Restriction of Use Clause and his silence could not amount to any representation[6].

35.  In addition, the Defendant contends that Mr Tsang was acting for both the Plaintiff and himself when he explained the Restriction of Use Clause and he was not acting as an agent of the Defendant[7].

36.  The Defendant denies that the Plaintiff was induced by the Representation in entering into the Tenancy Agreement. Rather, the Plaintiff relied on or ought to have relied on Big Job with regard to the renting of the Premises and the subject matter of the Representation.

37.  The Defendant denies that Representation or the Statement was false, as the Premises is and was at all material times fit to be used as a shop or for commercial use.

38.  In or about July 2016, the Plaintiff asked the Defendant to assist in relation to its application for the licence/‌permission for running a fast food shop on the ground floor of the Premises. On or about 1 August 2016, upon the Plaintiff’s request, the Defendant submitted an application to the Town Planning Board for planning permission for the ground floor of the Premises to be used for “Shop and Services (Fast Food Shop)”. On or about 29 September 2016, the Defendant visited the Noth Point Head Office of the Town Planning Board and inquired about the progress of the application for planning permission for the Premises to be used for “Shop and Services (Fast Food Shop)”. The Defendant was informed by the relevant officer that the application would be allowed in principle subject to a waiver fee of around HK$3,000 per month to be paid to the Government. The Defendant told Ms Wong of the Plaintiff of the above over the phone.

39.  It is the Defendant’s case that the Plaintiff was in repudiatory breach of the Tenancy Agreement in wrongfully terminating it on 8 October 2016. By letter dated 1 December 2016, the Defendant accepted the Plaintiff’s repudiation and demanded the Plaintiff to reinstate the Premises or pay the reinstatement costs.

40.  As a result of the Plaintiff’s wrongful termination of the Tenancy Agreement and failure to reinstate the Premises, the Defendant suffered loss and damages.

III. Issues for determination

41.  The following issues arise for determination in this trial[8]:

The Plaintiff’s claim

(a) Whether the Defendant (and/or his agent) made the Representation to the Plaintiff;

(b) Whether the Representation was false;

(c) Whether the Defendant made the Representation recklessly;

(d) Whether the Plaintiff was induced by the Representation into entering into the Tenancy Agreement;

(e) Whether the Representation was intended by the parties to form a term/ condition of the Tenancy Agreement (i.e. the Implied Condition);

(f) Whether the Plaintiff had rescinded the Tenancy Agreement based on misrepresentation. Whether the Plaintiff can claim damages against the Defendant for misrepresentation. Alternatively, whether the Plaintiff can claim damages against the Defendant for breach of the Tenancy Agreement;

The Defendant’s counterclaim

(g) Whether the Plaintiff repudiated the Tenancy Agreement in terminating it on 8 October 2016; and

(h) Whether the Plaintiff breached the Tenancy Agreement in failing to reinstate the Premises.

IV. Whether the Defendant (and/or his agent) made the Representation to the Plaintiff

42.  As pleaded in the Plaintiff’s Statement of Claim[9], the Representation which it relies on is the representation that “the Premises could be for commercial purpose”. According to the Plaintiff, the Representation was made by the Defendant himself as well as through Mr Tsang whom the Plaintiff alleges was the Defendant’s agent in making the above Representation.

Legal principles

43.  The legal principles on misrepresentation have been summarised by Deputy High Court Judge Alexander Stock SC in Joytex Development Limited v Super Homes Limited [2018] HKCFI 2286 at §77:

(a) Generally, an actionable misrepresentation requires a false statement of past or present fact, as distinct from a statement of opinion or intention; though a statement of opinion/ intention or as to the future may entail an implied statement of fact;

(b) Where there is a dispute as to the meaning conveyed, the court interprets the relevant words or conduct. The approach is objective, viewing the communication from the perspective of a reasonable person in the position of the representee. The test is whether: (a) the words or conduct in fact led the representee to believe the alleged false fact; and (b) it was reasonable for the representee to believe it from the words or conduct as he perceived them. In applying the test, the characteristics of the representee, including the level of sophistication, are taken into account; and

(c) The representee must have in fact relied on the statement; though this can sometimes be inferred. The representation need not be the only or main cause of the decision to contract. It is generally sufficient that it be a cause (in other words, a material inducement).

44.  As to whether silence can amount to a representation, Godfrey JA (as he then was) explained the principle in Pacific South (Asia) Holdings Ltd v Million Unity International Ltd [1997] HKLRD 1238, at 1244J-1245B:

“Where one party to a transaction perceives that the other party is labouring under a mistake as to some essential matter, he comes under an obligation to undeceive the other party if his omission to do so will ‘foster and perpetuate the delusion’ (as it is put in Spencer Bower and Turner, Estoppel by Representation, 3^rd Edition (1977) at para 59). In such a case silence is in effect a misrepresentation that the facts are indeed as the other party mistakenly believes them to be; and the first party is estopped from asserting otherwise.” (Emphasis added)

45.  On the issue of whether Mr Tsang was acting as an agent of the Defendant when he allegedly made the Representation as to the user of the Premises, it was held in Joytex (supra) at §§95-96 that:

(a) It is a question of fact in each case whether an estate agent is acting for a particular party in providing information to another party relating to a property;

(b) For estate agents who act for both the vendor and purchaser, they may assume different roles at different times. The facts of a particular case must be examined to see whether at a particular point in time the agent was acting for the vendor or the purchaser.

Whether the Defendant made the Representation to the Plaintiff

46.  I will first deal with the issue of whether the Defendant himself made the Representation. It is my view that he did, for the reasons below.

47.  There is no dispute that the Defendant was present with Mr Tsang on 10 April 2016 before the Tenancy Agreement was entered into. Amongst others, Mr Wong and Ms Wong of the Plaintiff were also present. The conversation between the parties at that time was recorded by Ms Wong and a transcript of the recording was adduced the Plaintiff before this Court (“the Transcript”). The Defendant does not dispute the accuracy of the Transcript.

48.  As recorded in the Transcript, prior to the parties signing the Tenancy Agreement, when Mr Tsang was explaining the Restriction on Use Clause, the Defendant and Mr Tsang said the following respectively to Mr Wong and Ms Wong:

“Mr Tsang: 咁呢個係一個商業誒--誒可以畀你商業嘅，嗄，即…

The Defendant: 商業用途嘅呢個。

Mr Tsang: 係嘞，冇錯嘞。因為其實原則上嗰個契亦都冇話限制話「哎吔，一定要住宅。」唔係嘅。用嚟做生意生意，……

The Defendant: 做商業用嘅，係呀。

Mr Tsang: ……做得，係呀。咁至於嗰個雜費嗰度呢，嗄，因為呢度有管理費嘅關係喇，咁只係差埋……^[10]”

49.  It is my view that the Defendant had made the Representation himself:

(a) As shown in the Transcript, the Defendant expressly represented to Mr Wong and Ms Wong of the Plaintiff that the Premises allows commercial use (“商業用途嘅呢個”, “做商業用嘅，係呀”);

(b) During cross-examination, the Defendant confirmed the accuracy of the Transcript. The Defendant admitted that he represented to the Plaintiff that the Premises allows commercial use;

(c) The meaning of the Representation is clear, especially when the parties were going through the Restriction of Use Clause which provided that the Plaintiff can only use the Premises for a shop;

(d) While it was Mr Tsang who said, “係嘞，冇錯嘞。因為其實原則上嗰個契亦都冇話限制話「哎吔，一定要住宅。」唔係嘅。用嚟做生意生意，……”, the Defendant’s failure to correct Ms Tsang, but instead reinforced what Mr Tsang by saying “做商業用嘅，係呀。” will foster and perpetuate the Plaintiff’s delusion. In such circumstances, the Defendant’s silence/ failure to correct Mr Tsang’s statement also amounted to a representation.

50.  In addition, I am of the view that Mr Tsang was acting as an agent of the Defendant when he made the representations in §48 above:

(a) While Mr Tsang acted for both the Plaintiff and the Defendant in the Tenancy Agreement, as held in Joytex (supra), whether Mr Tsang was acting as the Defendant’s agent at a particular point of time, or when he was providing particular information of the Premises to the Plaintiff depends on the facts of the case.

(b) In the context of the conversation in §47 above, it is clear that Mr Tsang was acting as the Defendant’s agent when he informed the Plaintiff that the Premises allows commercial use and the lease has no restriction that the Premises can only be for residential use. The above matters are information within the Defendant’s knowledge as the landlord. The Defendant was present when Mr Tsang made the representations and confirmed what Mr Tsang said by saying that the Premises allows commercial use (“商業用途嘅呢個”, “做商業用嘅，係呀”). In such circumstances, the Defendant must have given authority to Mr Tsang to make the representations in §47 above.

51.  Given the above, I find that the Defendant had made the Representation to the Plaintiff himself and through his agent Mr Tsang before the Plaintiff entered into the Tenancy Agreement.

The Defendant’s knowledge of the Intended Use

52.  There is a side issue as to whether the Defendant knew of the Plaintiff’s Intended Use of the Premises before the parties entered into the Tenancy Agreement.

53.  This issue has no direct impact on my finding above that the Defendant had made the Representation. However, it forms the background leading to the Defendant’s making of the Representation.

54.  On the evidence, I find that latest by the time before the parties entered into the Tenancy Agreement, the Defendant knew that the Plaintiff intended to carry out a food business in the Premises which requires application of a type of food licence:

(a) According to §11 of Ms Wong’s Witness Statement, she and Mr Wong met the Defendant and Mr Tsang at the Property Agency’s shop on 6 April 2016 before the Provisional Tenancy Agreement was signed. Mr Tsang informed the Defendant that the Plaintiff would sell fast food at the Premises. During cross-examination, Ms Wong said that she only met the Defendant for the first time when the Tenancy Agreement was signed;

(b) While it is uncertain from Ms Wong’s above evidence whether she was present when Mr Tsang spoke to the Defendant on 6 April 2016 and whether Mr Tsang did tell the Defendant specifically about the Intended Use or that the Plaintiff would sell fast food at the Premises, during cross-examination, the Defendant admitted that at the time when he signed the Provisional Tenancy Agreement on 6 April 2016, Mr Tsang told him that the Plaintiff intended the Premises for commercial use and they will do business there. Further, as the representative of Big Job attended the Premises on 6 April 2016 (which the Defendant knew was a food license advisor), the Defendant knew that the business which the Plaintiff intends to carry out in the Premises related to food, see also the Defendant’s Witness Statement, §13;

(c) The Defendant also admitted during cross-examination that before the parties signed the Tenancy Agreement on 10 April 2016, he knew that the Plaintiff intended to apply for a food licence even though he did not know about the details of the application and what exact type of licence the Plaintiff would apply.

V. Whether the Representation was false

55.  I have already found that before the parties entered into the Tenancy Agreement, the Defendant himself and through Mr Tsang had made the Representation that “the Premises could be for commercial purpose” to the Plaintiff.

56.  Objectively understood from the perspective of a reasonable person in the position of the Plaintiff, the meaning of the Representation is clear, it denotes a present fact and means that the Premises allows commercial use immediately.

57.  I do not agree with the Defendant that the Representation conveyed the meaning that (a) the Premises could be for commercial purpose upon an application for planning permission being granted by the Town Planning Board; (b) the Premises could be for commercial purpose upon an application for planning permission to the Town Planning Board which is likely to be successful in reasonable time; or (c) it is possible for the Premises to be used for commercial use upon a change of land use. The Defendant’s alleged meaning of the Representation is not borne out by the plain wording of the Representation at all.

58.  There can be little dispute that at the time when the Tenancy Agreement was entered into, the Premises could not be used for commercial purposes. The Premises is located within the “Village Type Development” zone. According to the Explanatory Statement, the usages of the Premises which are “always permitted” do not include commercial use. As the Premises is not a NTEH, its ground floor cannot be used for “Shop and Services (Fast Food Shop)” without any planning permission. As a result, the Plaintiff’s repeated applications to the FEHD for food factory licence were rejected on the basis of the Objection.

59.  For the above reason, I am of the view that the Representation was false.

60.  During the trial, both parties adduced expert evidence on the issue of “Having regard to its zoning by the Town Planning Board and the possibility of changing its land use, whether it was possible for the land use of No. 4 Eight Street, Tai Wai Village, Shatin, New Territories to be changed to Shop and Services (Fast Food Shop)”.

61.  As I have found that the Representation means that the Premises could be used for commercial use immediately, as opposed to meaning it was possible for the land use of the Premises to be changed for commercial use or for Shop and Services (Fast Food Shop), the expert evidence, which address the possibility of changing the land use of the Premises, is irrelevant to the issue of whether the Representation is true or false. Hence, this Court does not need to consider the expert evidence.

VI. Whether the Defendant made the Representation recklessly

62.  It is the pleaded case of the Plaintiff that the Defendant made the Representation recklessly: see Statement of Claim §30.

63.  I note that in the Plaintiff’s written closing submissions, it seeks to put forward an alternative case that the Representation was made negligently[11]. However, this alternative case was not pleaded and I will not consider it. I will only consider the Plaintiff’s pleaded case based on reckless Representation.

64.  According to the Defendant’s oral evidence, when he bought the Premises, a foot massage business was operating there and the properties on the entire street were applied for commercial use. He did not check clearly but thought it would be fine for the Premises to be for commercial use.

65.  During the Defendant’s cross-examination, he confirmed that at the time when the acquired the Premises, he knew that it was a residential property. However, he claimed that he did not know that the Premises was not a NTEH until the present proceedings. When being asked by the Plaintiff’s counsel whether he knew at the time when the Tenancy Agreement was signed that the Premises, not being a NTEH, cannot be of commercial use before obtaining planning permission from the Town Planning Board, the Defendant said that he did not know. When being asked by the Plaintiff’s counsel whether he thought of making an inquiry to ascertain the permitted usage of the Premises, the Defendant replied he did not know.

66.  Notwithstanding knowing that the Premises was a residential property, the Defendant did not make any inquiry to ascertain if the Premises allows commercial use. The Defendant merely relied on his observation that many other shops located on the same street as the Premises were carrying out businesses. As the registered owner of the Premises, without making the necessary inquiries, there is no reasonable ground for the Defendant to believe that the Premises can be allowed for commercial use. In such circumstances, it is clear to me that when the Defendant made the Representation to the Plaintiff, he was acting recklessly, not caring whether the Representation was true or false.

VII. Whether the Plaintiff was induced by the Representation into entering into the Tenancy Agreement

67.  As the Plaintiff had always intended to use the Premises for commercial use to open a shop selling fast food, whether the Premises allows commercial use must be a material consideration for the Plaintiff in deciding whether to rent the Premises. The Plaintiff must have relied on the Representation in entering into the Tenancy Agreement.

68.  The Plaintiff’s engagement of Big Job does not affect its reliance on the Representation.

69.  As could be seen from the renovation quotation and the licence service quotation confirmed by the Plaintiff, the scope of Big Job’s work only covered renovation of the Premises and assisting the Plaintiff in its application to the FEHD for the food factory licence. Big Job’s work did not include investigating into the land use of the Premises.

70.  Further, the Plaintiff only confirmed the above quotations to engage Big Job and paid the relevant deposits to Big Job after it entered into the Tenancy Agreement on 10 April 2016.

71.  In any event, the Representation does not need to be the only or main cause of the Plaintiff’s decision to contract. It is sufficient that the Representation is a cause, a material inducement, for the Plaintiff to enter into the Tenancy Agreement.

72.  As to the Reminders, they cannot negate the Plaintiff’s reliance on the Representation. The Reminders only concern the Plaintiff’s application of licence/ permission for the running of the Plaintiff’s business. They are not reminders to the effect that the Plaintiff should make its own investigation into the land use of the Premises, or that the Defendant disclaims responsibility/ liability for any representation in relation to the land use of the Premises.

73.  Ms Wong’s boyfriend’s recording of the conversation with the Defendant and Mr Tsang before the parties signed the Tenancy Agreement does not show that Ms Wong or Mr Wong distrust the Defendant or Mr Tsang. As Ms Wong explained, she asked her boyfriend to record the conversation as she considered the discussion to be important.

74.  It is neither here nor there for the Defendant to suggest that since Mr Wong is not acting as a witness in the trial, there is no evidence that the Plaintiff was induced by the Representation in entering into the Tenancy Agreement. What this Court is concerned with is whether the Plaintiff, a company, was induced by the Representation in entering into the Tenancy Agreement. Both Mr Wong and Ms Wong were the directors of the Plaintiff at the material time and both of them represent the Plaintiff. This Court is entitled to consider Ms Wong’s evidence as well as the other evidence, including the Plaintiff’s intention to start a food business in the Premises (which had been conveyed to the Defendant before the parties entered into the Tenancy Agreement, see §54 above) to conclude that the Plaintiff was induced by the Representation to enter into the Tenancy Agreement.

VIII. Whether the Representation was intended by the parties to form a term/ condition of the Tenancy Agreement (ie the Implied Condition)

75.  I agree with the Plaintiff that as it entered into the Tenancy Agreement based on the inducement of the Representation, and that the Representation is fundamental to the Tenancy Agreement given that pursuant to the Restriction of Use Clause, the Plaintiff was only allowed to use the Premises for a shop, the Representation can be inferred as intended by the parties to be a warranty and a condition of the Tenancy Agreement, ie the Implied Condition: see Ko Ching Chung v Fulltin Investment Ltd [2006] HKDC 198 per HH Judge H C Wong at §49, decision upheld by the Court of Appeal CACV 337/2006 (unrep, 13 July 2007).

76.  Contrary to the Defendant’s contention, I do not consider the Implied Condition to be inconsistent with the Restriction of Use Clause. Rather, the Implied Condition is consistent with the above clause, as the use of the Premises as a shop is consistent with the Premises being permitted for commercial use. The Implied Condition is also not inconsistent with Clause 4 of the Tenancy Agreement. Clause 4 only imposes an obligation on the Plaintiff as the tenant to comply with, inter alia, the negative or restrictive covenant contained in the government lease. This does not preclude the Defendant as the landlord from giving a warranty to the Plaintiff that the Premises permits commercial use (albeit such warranty turned out to be false).

IX. Reckless misrepresentation and breach of Implied Condition established

77.  For the reasons stated above, I find that the Plaintiff has established that it entered into the Tenancy Agreement by reason of the Defendant’s reckless false Representation.

78.  For the same reasons, I find that the Defendant was in breach of the Implied Condition of the Tenancy Agreement.

X. The Plaintiff’s reliefs

(a) Rescission based on misrepresentation

79.  The next issue for me to consider is whether the Plaintiff had rescinded the Tenancy Agreement based on misrepresentation.

80.  The right to rescind a contract belongs to the representee. Rescission is effected by an unequivocal election by the representee which demonstrates its intention to rescind the contract and to be no longer bound by it: see Cartwright: Misrepresentation, Mistake and Non-Disclosure (6^th Edn) §4-19.

81.  The conduct which the Plaintiff relies on to show its intention to rescind the Tenancy Agreement was the 5 October 2016 Letter and its return of the keys of the Premises to the Defendant on 8 October 2016[12].

82.  However, in the 5 October 2016 Letter, the Plaintiff did not indicate that it would rescind the Tenancy Agreement. Rather, the Plaintiff sought to terminate the Tenancy Agreement on the basis that the Defendant was in repudiatory breach of the Tenancy Agreement and indicated that it would claim against the Defendant for misrepresentation and/or breach of the Tenancy Agreement.

83.  In such circumstances, I am of the view that the Plaintiff had not rescinded the Tenancy Agreement based on misrepresentation. Rather, by the 5 October 2016 Letter, the Plaintiff (a) accepted the Defendant’s repudiatory breach of the Implied Condition and terminated the Tenancy Agreement with effect on or before 8 October 2016; and (b) indicated that it would claim damages against the Defendant based on misrepresentation and or breach of the Tenancy Agreement. On 8 October 2016, the Plaintiff terminated the Tenancy Agreement by returning the keys of the Premises to the Defendant.

(b) Damages for misrepresentation under Section 3(1) of the Ordinance

84.  I will move on to decide whether the Plaintiff can claim damages for misrepresentation pursuant to Section 3(1) of the Ordinance. The Plaintiff can rely on Section 3(1) even though it had not rescinded the Tenancy Agreement.

85.  Section 3(1) of the Ordinance provides that:

“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true.”

86.  Damages are available under Section 3(1) of the Ordinance in respect of a non-fraudulent misrepresentation which induces a contract, on the same basis as for the tort of deceit. Damages are awarded so as to put the representee in the position it would have been in, had the representation not been made: see Joytex (supra) §142.

87.  As I have found the Defendant made the false Representation recklessly and that there was no reasonable ground for him to believe that the Representation was true at the time when the Tenancy Agreement was entered into, the Plaintiff is entitled to claim damages pursuant to Section 3(1) of the Ordinance.

88.  I will deal with each head of damages claimed by the Plaintiff as set out in §89 of Ms Wong’s Witness Statement (“the Table of Damages”).

Security deposit, rental, Property Agent’s commission and wasted promotion materials

89.  The Defendant does not seem to dispute or seriously dispute that the Plaintiff is entitled to claim the following items in the Table of Damages[13]:

(a) Item (1): Security deposit = HK$119,400 (subject to deduction under Clause 7 of the Tenancy Agreement in the event that the Defendant proves that the Plaintiff was in breach of the Tenancy Agreement, see Section XI below);

(b) Item (2): Rental from 9 May 2016 to 8 October 2016 (HK$39,800 × 5 months) = HK$199,000;

(c) Item (3): Property Agency’s commission = HK$15,000;

(d) Item (7): Wasted promotion materials = HK$10,000.

Staff costs

90.  Under Item 4 of the Table of Damages, the Plaintiff claims HK$128,167.00 as staff costs for the period from April 2016 to October 2016. In §85 of Ms Wong’s Witness Statement, the Plaintiff claimed that it had employed one to five staff, including one part-time staff, for the above period. The documents which the Plaintiff relied on as supporting documents were “WOP-35” and “WOP-36”, being a summary and supporting documents of the salaries and MPF contribution for the financial year ended 31 March 2017.

91.  When one looks at “WOP-35” and “WOP-36”, one can only see the records of 2 staff (Ms Wong Oi Ling and Ms Yang Mei Ki, Maggie):

(a) For Ms Wong Oi Ling, the Plaintiff’s total contribution of her MPF payment for the months May, June and July 2016 was HK$1,150. Her total income for the above months was HK$23,000;

(b) As for Ms Yang Mei Ki, Maggie, the Plaintiff’s total contribution of her MPF payment for the months June and July 2016 was HK$900. Her total income for the above months was HK$18,000.

(c) The total of the above amounts is HK$43,050.

92.  In the Plaintiff’s written closing submissions, Appendix 2, the Plaintiff points to various documents in Bundle D of the Trial Bundle as supporting documents of the staff costs. However, these documents were not referred to in Ms. Wong’s Witness Statement as the supporting documents of the staff costs. They were not referred to in Ms Wong’s oral evidence either. I do not accept them to be supporting evidence of the staff costs.

93.  For the above reasons, I will only allow HK$43,050 allowed under this head.

Abortive renovation cost and procured equipment

94.  Under Item 5 of the Table of Damages, the Plaintiff claims HK$550,215.40 as abortive renovation and requirement costs. The breakdown of the amount is listed in the Loss Statement prepared by Messrs S K Poon & Co at “WOP-30” of Ms Wong’s WS (“the Loss Statement”) under “(1) Fixed Assets Written Off”.

95.  While Ms Wong claimed in §74 of her Witness Statement that she had checked all the supporting account records and said that they were actual expenses incurred by the Plaintiff for running the fast food business at the Premises, during cross-examination, Ms Wong was unable to explain a number of entries in the Loss Statement and why some of the figures in the Loss Statement was not supported by the documents whereas some of the items which appeared in the documents were not included in the Loss Statement. As Ms Wong admitted, she was not personally involved in the preparation of the Loss Statement. She only collated all the documents and passed them to Mr Wong.

96.  In such circumstances, I will have to look closely into each of the entries in the Loss Statement to verify if they are supported by the documentary evidence at “WOP-31”.

97.  With respect to the items under “Leasehold Improvements”:

(a) The Defendant does not dispute the cost for 磁磚at HK$4,590 and插蘇面板at HK$970;

(b) With respect to 設計及各項裝修工程費, of the HK$220,280 stated in the Loss Statement:

(i) HK$217,520 was supported by the cheques issued by Mr Wong/‌the Plaintiff to Big Job and the receipt by Big Job. As evidenced by the quotation, the renovation work was for the Premises;

(ii) As to the remaining HK$1,760 and HK$1,000, there is insufficient evidence to show that the costs were incurred in relation to the Premises;

(iii) Hence, only HK$217,520 would be allowed.

(c) With respect to 裝修完工清潔費 of HK$3,500, I am prepared to allow the amount as it is evidenced by the invoice issued by Wing Kai Transportation Co and confirmed by Ms Wong that the costs had been paid.

(d) With respect to LED 門前射燈, out of the HK$2,023 claimed, only HK$1,760 is supported by the Cash Memo issued by Tak Lee Electric Co Ltd. As for the remaining amounts of HK$63 (which is shown on a receipt with no description as to what the amount was for) and HK$200 (for Octopus top-up fee), there is no sufficient evidence to show that they relate to the Premises, or the Plaintiff’s business at the Premises. I will only allow HK$1,760 for this item;

(e) With respect to 銀白鋁四趟門配強化磨砂片加鎖, I am prepared to allow the HK$8,000 as the amount is supported by the invoice issued by 合益鋁鋼工程有限公司 and confirmed by Ms Wong that the cost had been paid;

(f) With respect to 店舖電纜器材 of HK$1,342, I will not allow this item as the manuscripts on the invoices are illegible and there is insufficient evidence to show that the expenses relate to the Premise or the Plaintiff’s business at the Premises;

(g) With respect to射燈設備 of HK$1,846, I will only allow HK$1,794 (being HK$1,300 (instead of HK$1,352 + HK$380 + HK$114), as it was stated in the first invoice from 景輝行dated 1 June 2016 that only HK$1,300 was received (“收 1300”);

(h) With respect to 玻璃纖維粟米製作 of HK$131,800, only HK$91,800 is supported by the invoices issued by E & One Production Limited and cheques issued by the Plaintiff in settlement of the same. Therefore, I will only allow the amount of HK$91,800 for this item;

(i) With respect to 公司商標製作 of HK$33,800, I will allow the full amount as the expenses is evidenced by the invoice issued by E & One Production Limited and the cheque issued by the Plaintiff to settle the same.

98.  With respect to the items under “Computer System for the Shop”:

(a) The Defendant does not dispute the item GB DVR System & Router of HK$7,345;

(b) With respect to “EBSPOS” F&B System & Printer, I will only allow HK$18,860 instead of HK$19,350, as the former was the actual discounted price of the item as evidenced by the invoices issued by Everich Business System Limited and the cheques issued by the Plaintiff to settle the same.

99.  With respect to the Wireless Router of HK$490 referred to in the Plaintiff’s written closing submissions Appendix 2, this item was not included in the Loss Statement which the Plaintiff relies on to show the abortive renovation cost and procured equipment, I will not allow this item.

100.  With respect to the items under “Furniture & Fixtures”:

(a) With respect to 防火板木櫃，高吧椅及各項層板製作安裝費 of HK$13,282 claimed, I will allow the full amount, as the total expenses for the items which are evidenced by documentary evidence appear to be larger than HK$13,282:

(i) HK$650 for 40 X16 層板 as evidenced in the cash memo issued by Chow Fun Kee’s Kitchenware;

(ii) HK$13,200 for 不銹鋼架製作及安裝 and 防火板木櫃製作及安裝 as evidenced by the invoice issued by E & One Advertising Production Limited dated 12 June 2016 and the cheque issued by the Plaintiff to settle the same. It is noted that in the invoice, the total amount was stated to be HK$18,200. However, as shown on the cheque, only HK$13,200 was paid by the Plaintiff; and

(iii) HK$1,440 for 30” 高吧櫈 as this is evidenced by the invoice issued by Kin Wing Furniture Design and confirmed by Ms Wong to be paid by the Plaintiff.

101.  Moving on to “Plant & Equipment”:

(a) Under this head, the Plaintiff claims a total of HK$102,087.40;

(b) Of the list of items therein, the Defendant disputes 8 of them, namely:

	Item	Amount (HK$)
1.	中國爆谷機，爆谷車	3,618
2.	惠而浦分體式冷氣機 × 2 連安裝費	41,000
3.	電磁爐	800
4.	伊瑪米立方小巧電飯煲 × 3	717
5.	不銹鋼架製作及安裝	8,300
6.	伊瑪米立方小巧電飯煲 × 2	382.40
7.	揭蓋式低溫雪櫃	2,500
8.	活力養生機 (乳酪黃)	2,890

(c) With respect to 中國爆谷機，爆谷車 of HK$3,618, I am prepared to allow the amount as it is evidenced by the invoice and confirmed by Ms Wong in her Witness Statement to have been incurred by the Plaintiff;

(d) With respect to 惠而浦分體式冷氣機 × 2 連安裝費 of HK$41,000, I will allow the amount as it is evidenced by (a) the invoice issued by Chong Hing Electrical Company (for HK$33,000) and confirmed by Ms Wong in her Witness Statement that the Plaintiff had settled the expenses; and (b) the invoice issued by 進業水電冷氣裝修工程 (for HK$8,000) and a cheque issued by the Plaintiff to settle the same;

(e) With respect to 電磁爐 of HK$800, I will allow the amount as it is evidenced by the cash memo issued by Choy Tung Shing and confirmed by Ms Wong in her Witness Statement that the Plaintiff had settled the expenses.

(f) With respect to 伊瑪米立方小巧電飯煲 × 3 of HK$717, I will allow the amount, as the receipts issued by Japan City show that three rice cookers at HK$239 each were bought.

(g) With respect to 不銹鋼架製作及安裝 of HK$8,300, I will not allow this amount as this has already been claimed in §100 above.

(h) With respect to 伊瑪米立方小巧電飯煲 × 2 of HK$384.20, I will allow the amount as it is evidenced by the receipt issued by Japan City.

(i) With respect to 揭蓋式低溫雪櫃 of HK$2,500, I will allow the amount as it is evidenced by the invoice issued by Luen Pun Enterprise Group Limited and confirmed by Ms Wong in her Witness Statement to have been paid by the Plaintiff[14].

(j) 活力養生機 (乳酪黃) of HK$2,890, I will allow the amount as it is evidence by the receipt issued by German Pool Equipment Limited.

(k) Therefore, of the above 8 complaints, one of them is valid and HK$8,300 for 不銹鋼架製作及安裝 in sub-paragraph (f) will be deducted from the total amount claimed, giving the sub-total of HK$93,787.40 (ie HK$102,087.40-HK$8,300).

102.  To summarise, the total amount allowed for Item 5 “Abortive renovation cost and procured equipment” is HK$496,038.40:

Items	Amount (HK$)
Leasehold Improvements
設計及各項裝修工程費	217,520
裝修完工清潔費	3,500
磁磚	4,590
LED 門前射燈	1,760
插蘇面板	970
銀白鋁四趟門配強化磨砂片加鎖	8,000
店舖電纜器材	0
射燈設備	1,794
玻璃纖維粟米製作	91,800
公司商標製作	33,800
Sub-total	363,734
Computer System for the Shop
GB DVR System & Router	7,345
“EBSPOS” F&B System & Printer	18,860
Sub-total	26,205
Furniture & Fixtures
防火板木櫃，高吧椅及各項層板製作安裝費	13,282
Sub-total	13,282
Plant & Equipment
Sub-total	93,787.40
Total	497,008.40

Licence application cost and business registration cost

103.  Under Item 6, the Plaintiff claims HK$16,000 licence application costs and HK$2,400 business registration cost.

104.  I accept that the Plaintiff had incurred HK$16,000 to engage Big Job to assist in the licence application, as evidenced by the licence service quotation and the cheque payable to Big Job at “WOP-13” and “WOP-14” of Ms Wong’s Witness Statement.

105.  As to the business registration cost totalling HK$2,400, the Plaintiff accepted in §80 of Ms Wong’s Witness Statement that HK$1,600 was in fact incurred for “other company administration services” provided by Smart Ken Corporation Limited. From the receipt dated 22 April 2016 at “WOP-32”, there is no evidence to show that the work done for the HK$1,600 relates to the Premises. Therefore, I am only prepared to allow the HK$800 which was stated in the receipt from Smart Ken Corporation Limited to be for “Branch application” (“WOP-33” of Ms Wong’s Witness Statement).

Installation of door locks and duplicate keys

106.  Under Item (8) of the Table of Damages, the Plaintiff claims HK$583 for the locks and duplicate keys for the Premises. I am satisfied that Plaintiff would not have incurred the expenses had it not been for the Representation and the Tenancy Agreement.

107.  Even though the handwritten invoices at “WOP-40” of Ms Wong’s Witness Statement did not expressly record that the amounts stated therein were paid by the Plaintiff, I am prepared to accept the Plaintiff’s evidence that the amounts were paid by it: see Ms Wong’s Witness Statement §88.

Loss of potential profits

108.  Under Item (9), the Plaintiff claims for loss of potential profit in the sum of HK$675,000 (being HK$15,000 × 45 months).

109.  It must be pointed out that in a claim under Section 3(1) of the Ordinance, a representee cannot recover damages based on the profits that he would have made if the representation had been true, as this is the measure of damages in contract, not tort. What the representee may claim is damages for loss of potential profits, which would, but for the misrepresentation, have been earned on an alternative investment. In order to establish such a claim, the representee must show on a balance of probabilities that it would have entered into the alternative and more profitable transaction, and a real and substantial chance (as opposed to a speculative one) that the relevant third party would have transacted: see Joytex (supra) §§146-154; citing, inter alia, Cartwright (supra) §§5-39 and 7-41.

110.  It is readily apparent that the HK$675,000 which the Plaintiff seeks to claim is not the loss of potential profit from alternative investment: see SoC §34[15]; Ms Wong’s Witness Statement §§70-73. Rather, the amount is the alleged profit which the Plaintiff will make if the Representation were true and Tenancy Agreement were to run its full term, ie the measure of damages in contract.

111.  There is no pleading or evidence of the alternative investment which the Plaintiff would have undertaken or that the alternative investment would be more profitable. Even assuming the Plaintiff’s case is that the alternative investment would be for the Plaintiff to carry on the food factory business in another venue, the Plaintiff has not identified the alternative venue or adduced evidence on the potential expenses which it would have to incur to operate the business in this alternative venue. There is also no evidence on the potential revenue which may be earned if the Plaintiff were to carry out the food factory business in this alternative venue. It follows that there is no evidence that the Plaintiff’s business would be more profitable if it were to be carried out in an alternative venue.

112.  For the above reasons, I am not prepared to allow the Plaintiff’s claim under this head.

Auditor cost

113.  Under Item (10), the Plaintiff claims HK$3,000 auditor cost. I am prepared to allow this item as Messrs S K Poon & Co did prepare the Loss Statement and “checked and examined the information supplied and explanations given by the management of [the Plaintiff]” even though they did not conduct any auditing on the asset and liability of the Plaintiff: see Loss Statement p 1.

Net – Resale of requirement to Hing Lee

114.  According to the Plaintiff, it sold all the cooking equipment and kitchenware to 興利汽車 at HK$8,200. While the quotation only listed out some of the items, it is the Plaintiff’s evidence, which I accept, that the Plaintiff had sold all the cooking equipment and kitchenware to 興利汽車.

115.  In the Defendant’s written closing submission, the Defendant argued that the Plaintiff should have sold the items at a higher price of HK$95,281.57 applying the alleged “straight-line depreciation of 5 years”. I do not accept the argument. Given that the Plaintiff had adduced evidence to show that it had actually sold the cooking equipment and kitchenware for HK$8,200, this amount should be adopted.

Total damages allowed under Section 3(1) of the Ordinance

116.  In summary, the damages allowed under Section 3(1) of the Ordinance is as follows:

	Item	Amount (HK$)
1.	Security Deposit	119,400.00
2.	Rental from 9 May 2016 to 8 October 2016	199,000.00
3.	Property Agency’s commission	15,000.00
4.	Staff costs	43,050.00
5.	Abortive renovation costs and equipment	497,008.40
6.	Licence application cost and business registration cost	16,800.00
7.	Wasted promotion materials	10,000.00
8.	Installation of door locks and duplicate keys	583.00
9.	Loss of potential profits	Nil
10.	Auditor cost	3,000.00
Net	Re-sale equipment to Hing Lee	(8,200)
	Total	895,641.40

117.  As I have granted damages to the Plaintiff for misrepresentation based on Section 3(1) of the Ordinance, I do not need to consider the Plaintiff’s claim for damages based on the alternative ground of the Defendant’s breach of the Implied Condition.

(c) Damages based on the Defendant’s breach of the Implied Condition

118.  As I have granted damages to the Plaintiff for misrepresentation based on Section 3(1) of the Ordinance, I do not need to consider the Plaintiff’s claim for damages based on the alternative ground of the Defendant’s breach of the Implied Condition.

XI. Whether the Plaintiff was in breach of the Tenancy Agreement

119.  For the reasons stated above, the Plaintiff was entitled to accept the Defendant’s repudiatory breach of the Implied Condition and terminate the Tenancy Agreement on 8 October 2016. The Plaintiff was not in breach in terminating the Tenancy Agreement.

120.  The remaining issue is whether the Plaintiff was in breach of Clause 6 of the Tenancy Agreement which requires the Plaintiff to:

(a) Keep the interior of the Premises in good and tenantable repair and condition (fair wear and tear and damage caused by the inherent defects excepted) during the term of the tenancy;

(b) Deliver up vacant possession of the Premises in the same repair and condition on the expiration or sooner determination of the Tenancy Agreement.

121.  Regarding the meaning of vacant possession, in Cumberland Consolidated Holdings, Limited v Ireland [1946] KB 264, Lord Green MR said at 270-271 that the right to actual unimpeded physical enjoyment comprised the right to vacant possession. As to what amounts to physical impediment, it means an impediment which substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of the property.

122.  It is my view that the Plaintiff has breached Clause 6 of the Tenancy Agreement in failing to deliver up vacant possession of the Premises in the same repair and condition on the termination of the Tenancy Agreement.

123.  There is no dispute that the photos at “WOP-9” of Ms Wong’s WS show the condition of the Premises at the time when the Plaintiff took possession of the Premises. The photos at “WOP-26” of Ms Wong’s WS show that condition of the Premises when Ms Wong returned the keys of the Premises to the Defendant.

124.  As admitted by Ms Wong in §63 of her Witness Statement, the following items remained in the Premises when the Plaintiff delivered possession to the Defendant:

(a) A wall-mounted water heater on the ground floor;

(b) Water sinks in the kitchen area on the ground floor and first floor;

(c) A partition board mounted to the wall in the kitchen area on the ground floor;

(d) A few wooden tables mounted to the wall in the kitchen area on the ground floor;

(e) A “sweet corn” figure on the balcony of the first floor; and

(f) A bed frame on the second floor.

(“the Left Behind Items”)

125.  These items were not in the Premises at the time when the Plaintiff took possession. Therefore, it cannot be said that the Plaintiff had return the Premises to the Defendant “in the same repair and condition”. Further, the above items are either fixed on the Premises or are of considerably large size. They will, in my view, cause substantial interference to the enjoyment of the right of possession of the Premises.

126.  Whether the previous tenant had left furniture or items behind before they left the Premises is irrelevant to the Plaintiff’s obligation under Clause 6, as the previous tenant’s conduct is governed by its agreement with the landlord which the Plaintiff was not a party to.

127.  In the Defendant’s Witness Statement §45, he only stated generally that “when the Plaintiff surrendered the shop on 8 October 2016, the equipment facilities, condition in the Premises, were not in the same condition as before. I had to instruct A1 City Window Waterpoof Eng. Co. to reinstate the original condition of the Premises prior to leading it to the Plaintiff, for which I had spent HK$200,000”.

128.  In the Defendant’s oral evidence, he sought to introduce new allegations that there were certain structural damages to the Premises. However, these were not pleaded and were never raised in the Defendant’s Witness Statement. The new allegations were also not raised in the Defendant’s letter to Plaintiff dated 1 December 2016.

129.  While Ms Wong accepted in her oral evidence that the Plaintiff had elevated the floor of the Premises, as the Defendant accepted in his oral evidence, such elevation would not cause any structural damage to the floor of the Premises.

130.  I will therefore reject the Defendant’s allegation that the Plaintiff had caused structural damage to the Premises. Hence, the Plaintiff’s breach of Clause 6 is limited to failure to remove the Left Behind Items when it delivered possession.

131.  I will now deal with the damages which the Plaintiff should pay to the Defendant for its breach of Clause 6.

132.  The only evidence which the Defendant adduced to prove damages is the Invoice from A1 City Window Waterproof Eng Co dated 12 December 2016 for HK$200,000 (“the A1 Quotation”) and a receipt of the same amount issued by A1 City to the Defendant. According to the A1 Quotation, 7 items were to be carried out in the Premises, namely:

“工程項目 :

1. 清拆地台、牆身、天花裝修、還原鋪面

2. 清拆熱水爐、電器設備、電器佈線、還原電線裝置

3. 拆電花、燈具等還原

4. 重做地台、英泥沙、牆身批灰、沖白色還原

5. 拆星盆及抬面、車走

6. 清潔及清場

7. 承建商勞保及全保”

133.  The A1 Quotation cannot assist the Defendant in showing the loss and damage he had suffered for removing the Left Behind Items:

(a) There is no breakdown in the A1 Quotation as to how much each individual item costs. It is unclear whether they concern the Left Behind Items or the newly alleged structural damages to the Premises which I have rejected and do not form part of the breach of the Plaintiff;

(b) As the Defendant confirmed during oral evidence, the “sweet corn” on the balcony of the first floor was only removed in April 2017 and it was removed by the tenant following the Plaintiff. Hence, the HK$200,000 in the A1 Quotation does not cover this item;

(c) The Defendant accepted during oral evidence that the amount quoted in the A1 Quotation was on the high side.

134.  On the other hand, the Plaintiff had adduced the expert evidence from of Mr Benjamin Lam (“Mr Lam”) on the reasonable costs of reinstatement of the Premises with reference to the A1 Quotation. According to Mr Lam, the total costs of all the items in the A1 Quotation is HK$15,718.61.

135.  Having considered the A1 Quotation and Mr Lam’s expert evidence, and even assuming all the items in the A1 Quotation concern the Left Behind Items, I accept Mr. Lam’s evidence that the costs of reinstating the said Items is HK$15,718.61.

136.  The Defendant contends that the amount of HK$15,718.61 put forward by Mr. Lam was too low, as Mr Lam referred to the measured rates set out in the Schedule of Rates for Term Contracts for Building Works, 2016 Edition published by the Architectural Services Department of the HKSAR (“the ASD Schedule”) in his assessment of the costs. I do not accept the Defendant’s argument:

(a) As Mr Lam stated in his expert report and explained in his oral evidence, he made reference to the ASD Schedule in his assessment where he considered it appropriate with adjustment made taking into account the likely change in price over the period between December 2015 (the time of the costs data contained in the ASD Schedule) and December 2016/January 2017 (around the time when the works stated in the A1 Quotation was performed);

(b) The Defendant has not adduced any expert evidence to challenge the assessment by Mr. Lam or give evidence as to what the costs for removing/reinstating the Left Behind Items should be.

137.  For the above reason, the Plaintiff is liable to pay HK$15,718.61 to the Defendant for breaching Clause 6 of the Tenancy Agreement.

XII. Disposition and costs

138.  Taking into account the damages which the Defendant needs to pay the Plaintiff for misrepresentation under Section 3 (1) of the Ordinance (HK$895,641.40) and the damages which the Plaintiff needs to pay the Defendant for breach of Clause 6 of the Tenancy Agreement (HK$15,718.61), I order the Defendant to pay damages to the Plaintiff in the sum of HK$879,923 (i.e. HK$895,641.40 – HK$15,718.61 = HK$879,922.79, round up to HK$879,923.00).

139.  As to costs, as both parties have succeeded in part of their claims, I make an order nisi that the Defendant do pay to the Plaintiff 80% of the costs of the Action, including all the costs reserved (if any), to be taxed if not agreed, with Certificate for Counsel. The costs order nisi should become absolute after 14 days from the date of this Judgment unless an application is taken out to vary the same.