KEY UP LTD v. SO FOOK LUNG AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The Plaintiff in these proceedings is the owner of certain property known as Happy Centre in Cheung Sha Wan Road, Kowloon, including shop premises on the ground flour of that building which were let to the 1st Defendant, as agent for the 2nd Defendant, under a tenancy agreement dated 23rd December 1986, for a term of 3 years from 21st March 1987 at a rental of $21,000.00 a month.

2. On 29th August 1989 by way of a notice of termination, the Plaintiff required the 1st Defendant to vacate the premises at the expiration of the Tenancy period on 20th March 1990.

3. The Defendants failed to do so and claim that by virtue of an agreement with the Plaintiff company, made at the commencement of the previous tenancy period, they are entitled to a renewal of the tenancy up to 20th March 1991, and a right of pre-emption upon the sale of the premises by the Plaintiff, which the Plaintiff admits it now wishes to do.

4. The Defendants claim that such agreement is evidenced by two documents signed by one Ng Sze Cheen, an employee of the Plaintiff, the first being dated 26th March 1983 (the first memorandum) and the second undated but said by the Defendants to have been signed in December 1986 (the second memorandum).

5. The relevant part of the first memorandum reads as follows :

"... it was also stipulated that the tenancy be renewable for another term of four years until 20th March 1991 and the rental increase he more than 40% exclusive of rates, if thereafter the Tenancy has expired, and both parties do not agree to rent or to let, the landlord shall give 3 months' time as removal period at the original rental, if I am desirous of continuing to rent (the shop premises) after the expiration of the tenancy, I shall have priority to continue to rent and it shall be executed in accordance with the agreement. This agreement has been agreed to and promised by the landlord Wong Po Wah. Both parties agreed that each shall keep his words. During the term of the tenancy I shall have the priority to purchase (the shop premises) should the company is desirous of selling it."

 

6. The second memorandum recites the gist of the first memorandum as to renewal of the tenancy, and reads:

"However, at the time when I arrived at the office of Solicitors Messrs. Gallant Y.T. Ho & Co. to deal with the renewal procedures, a tenancy of 3 years only were made. At that time I did mention that the memorandum of agreement with Mr. Wong Po Wah shall be followed to make a tenancy agreement with a term of 4 years. Yet the representative of the landlord stated that upon expiry of the terra of three years with no arrears of rental, I shall have the priority to renew the tenancy and (both parties) shall act according to the memorandum of agreement."

 

7. The Plaintiffs, for their part, deny the authenticity of either of these documents of which they say they had no knowledge, and claim that, in any event, they cannot bind the company, not being signed by an authorised signatory, and the nature of the wording makes them of no legal effect. They rely solely on the tenancy agreement signed by both parties.

8. To deal with the various contentions, it is necessary to recite something of the background of the parties, their relationship, and the tenancy of the premises in question.

9. The Plaintiffs company is a family business started by one Wong Po Wah in 1980. The family had originally been, and I believe still are, in the sewing machine business, but like similar families, diversified into property and formed the Plaintiff company to own and rent various properties, among them Happy Centre.

10. As I have said, the company was a family affair, the chairman, and, in effect, the managing director, being Wong Po Wah, and the directors, his daughter and three sons, Wong Yiu King, Wong Yiu Fai, Wong Shu Ko and Wong Shu Ling.

11. However, the running of the company was almost Solely in the hands of Wong Po Wah, who by 1983 was assisted by his son wong Shu Ko, who in turn took over the management of the company in the middle of 1984 upon the failing health of his father, Wong Po Wah, who died in February 1985.

12. None of the other members of The family appear to have concerned themselves with this part of the family's business.

13. The company operated its business from a smell office in Des Voeux Road Central, shared with another company in which the family had an interest, Wo Yick Enterprises, and where there was also employed by them a lady receptionist/ clerk and Mr. Ng Sze Cheen, whose position and authority in the Plaintiff company is one of the matters in dispute, and to whom I shall return shortly.

14. The 1st Defendant, So Fook Lung, is similarly the head of a family business, of which he has largely handed over the running to his sons, and which is concerned with the operation of shops selling Chinese medicines, herbs and dried sea products.

15. In about February 1983, the 1st Defendant Mr. So noted that the shop in Happy Centre, a newly completed building, was available to rent, and, after an initial telephone call to the Plaintiff company, visited their offices, where he saw Ng Sze Cheen who told him the terms being asked for the premises. Mr. So returned two days later when he was introduced to long Po Wah and as a result of negotiations with Wong, on 5th March 1983 went to gallant Y.T. Ho & Co. and signed a tenancy agreement drawn up by them for 4 years from 21st March 1983 at a rent of $17,500.00 per month (the first tenancy agreement).

16. In 1986 Mr. So entered into negotiations with Mr. Wong Shu Ko, who by now was running the company, and the result of that was a further tenancy agreement drawn up by the same solicitors and signed by Mr. So and Wong Shu Ko in which he was given a further term of 3 years at rent of $21,000.00 per month from 21st March 1987.

17. However, to go back to the first tenancy agreement, it is claimed by the 1st Defendant that the negotiations with Wong Po Wah leading to that agreement concerned also specific requirements by Wong Po Wah as to decoration and fitting out of the shop, including high quality electrical fittings, fire-proof ceiling tiles and the necessity to raise show cases off the ground, all as a result of a possibility of flooding in that area. This, Mr. So claims, increased the costs of fitting amount so much, although by how much more than the usual cost of fitting out we have no evidence, that Wong Po Wah agreed that he should have the right to renew for a further term of 4 years at the end of the tenancy, and that if the Plaintiff wished to sell during the tenancy he would be offered the premises first.

18. These terms were not included in the first tenancy agreement, although we might have expected that a right to renew at least could well have been, but are contained in the first memorandum, handwritten in Chinese and signed by Mr. So and allegedly by Ng Sze Cheen at the direction of Wong Po wah.

19. The first matter then that I have to consider is whether there was such an agreement between Wong Po Wah and Mr. So, and whether it was validly embodied in the document upon which the Defendants rely heavily in support of their case.

20. As to what passed Wong Po Wah and Mr. So during their discussions prior to the first tenancy we have only the evidence of Mr. So. He claims that Ng Sze Cheen was also present throughout, which is denied by Mr. Ng, but as Mr. Ng concedes that his memory of events so far back is poor, I consider it probable that he was present, at least for part of the time, although it is clear that he took no part in the negotiations for the tenancy, for which Wong Po Wah had sole authority. I draw some support for this conclusion from the last that Mr. Ng completed the receipt for Mr. So's deposit, which contained the basic terms of the tenancy, but again without mentioning any other agreement as to renewal or sale.

21. However, it may well be that discussion as to the terms of the tenancy did include mention of a renewal term at its expiration, and I consider it probable that it did. It is equally probable that the possibility of Mr. So purchasing the premises in the event of a disposal of it by the Plaintiff was also mentioned.

22. But if any agreement was reached on these matters as part of their' agreement as to the tenancy, it was not included in the terms endorsed on the receipt given to Mr. So on that day, 28th February 1983. It was not included in the terms of the formal tenancy agreement drawn up by the Plaintiffs solicitors, on their instructions, and signed by Mr. So on 5th March 1983.

23. The Defendants rely instead on a document dated three weeks later which Mr. So maintained was written at the direction of Wong Po Wah, but then signed by Ng Sze Cheen on Mr. Wong's instructions.

24. Throughout these procedings the Defendants have made much of what they claim to be Ng Sze Cheen's position in the Plaintiff company and his authority to act on its behalf. In support of this Mr. So points out that it was Mr. Ng who first gave him details of the property, chat it was Mr. Ng who spoke to on the telephone on his first approach, and Mr. Ng who completed and signed the receipt on 28th February. Mr. Ng, he says, was in charge of tenancy matters, and was given this authority by Wong Po Wah.

25. I find the facts of Mr. Ng's position in the company to be very different.

26. Having heard the evidence of Mr. Ng himself and Wong Shu Ko, it is apparent that Mr. Ng's duties were little more than those of a clerk. He had been employed by Wong Po Wah for many years, and was clearly a trusted employee, but had received little formal education, and had been a manual worker in Wong Po Wah's sewing machine business before being moved to clerical work, helping with receipt and dispatch, going to the bank, writing simple or standard letters to tenants of the Plaintiff's properties on the instructions of Wong Po Wah, and later Wong Shu Ko, and giving receipts for rent to tenants who came to the office to pay.

27. The Defendants' contention that he was more than that is not in accordance with the evidence of Mr. Ng and Mr. Wong which I have no hesitation in accepting.

28. Indeed, Mr. So's own evidence supports this view in that all his dealings with the Plaintiff is matters of importance, negotiating the first and second tenancies, requesting time to pay the rent when he was in arrears, which he was continuously throughout both tenancies, he sought out the person he knew to have the authority to make decisions, Wong Po Wah, and later Wong Shu Ko.

29. To return then to the first memorandum, I find it inconceivable that Wong Po Wah, who relied on his solicitors to draw up formal documents for his company, should authorise the drawing up of such a document and its signing, not by himself but by his clerk, with the intention that it should bind his company.

30. It is clear that Mr. Ng, if he did sign such a document, had no authority to do so, and I do not accept on the evidence that Wong Po Wah gave him the authority to do so.

31. Even were I to assume that the first memorandum had been validly drawn up and signed so as to hind the Plaintiff, what would be its effect?

32. Although it purports to give an option to renew, the absence of an agreement as to rent in my view must make it void for uncertainty. A stipulation that the rent will be more than 40%" is far too vague in the absence of other provisions for fixing the rent. At best it provides for a rent to be agreed with a starting point at least 40% more than the previous rent, but without providing the machinery for fixing such rent.

33. It is quite clear on the authority of King's Motors (Oxford) Ltd. v. Lax [1970] 1WLR 426 that such an agreement to mutually agree is unenforceable.

34. As to the "priority to purchase", in so far as it is possible to give a meaning to these words, I agree with Mr. Woo on behalf of the Defendants, that these indicate a right of pre-emption or first refusal, rather than an option to purchase, on an intention by the Plaintiff to sell during the tenancy.

35. There are two reasons, however, for which I consider that such a right would now be unenforceable.

36. The first is that the memorandum specifically stated that the priority to purchase is "during the term of the tenancy". This can only mean, in my view, during the term of the first tenancy. It would have to he in far clearer terms for me to consider such a right to continue throughout subsequent tenancies. It would therefore lapse at the end of that tenancy.

37. The second is that, even if there were such an agreement between the parties which was still enforceable during the subsequent tenancy, the Plaintiff has offered the premises to the 1st Defendants on the same terms as they are prepared to sell and, I am satisfied, have agreed to sell, to another party. That these terms include also the sale of the office premises above the property in question makes no difference to the nature of that offer, which in January 1990 was declined by the Defendants.

38. Miss Eu on behalf of the Plaintiff has further argued that even if there was such an agreement as contained in the first memorandum, and even if it had been enforceable it was either discharged or waived by the second tenancy agreement.

39. For the sake of completeness I will deal with that contention, and with the nature and effect of the second memorandum.

40. In the middle of 1986 the 1st Defendant approached Wong Shu Ko to discuss renewal of his tenancy which was to expire in March the following year.

41. It is not in dispute that during the first tenancy the 1st Defendant was constantly in arrears with his rent. Indeed, it is clear from the Plaintiff's records that he was rarely less than 2 or 3 months late in paying, and it is further not denied that he frequently visited Wong Po Wah and later Wong Shu Ko to plead for time to Pay.

42. With a tolerance rare in Hong Kong such indulgence was always granted by Wong Po Wah after the first few months, and, although it is clear that Wong Shu Ko has a more modern hard-headed approach to business, he also has been prevailed upon by Mr. So to tolerate rent being constantly in arrears.

43. However, Mr. Wong says that the erratic payment of rent was a matter for discussion when Mr. So came to ask for a renewal of the tenancy. I accept that evidence, and would have been surprised had it not been so. Mr. Wong says that a new rent was agreed at $21,000.00 per month, an increase of 20% and, in view of the record of arrears, a term of 3 years rather than the previous 4.

44. He denies that he was shown or told about the first memorandum by Mr. So. He says that if he had been, he would have asked for the 40% mentioned there. Again, where his evidence differs from that of Mr. So, I accept that of Mr. Wong.

45. Mr. So has said that the memorandum was discussed and that it was agreed that he should not be bound by that part of it relating to the increase in rent by more than 40%, He cannot have it both ways. Either he accepts the alleged liability of both parties under the memorandum, or he has agreed to discharge it and replace it by a new agreement. He cannot now be heard to say that part only was varied in his favour, with no consideration, with the remainder still binding the Plaintiff.

46. It is quite clear that by signing the second tenancy agreement, if there had been any liability or either party under a previous agreement, that agreement was superseded by the new tenancy agreement.

47. The story is no yet quite complete, as Mr. So did not sign the second tenancy agreement immediately. On his first visit to the Plaintiff's solicitors, on being told the terms of the tenancy in the agreement, he says that he disagreed with the term of 3 years and returned to the Plaintiff's office to discuss the matter.

48. He says that there had been a mistake and 4 years had been agreed with Mr. Wong. However, I do not accept that this was the case, and I am satisfied that the terms set out in Mr. Wong's letter of instruction to the Plaintiff's solicitors were those agreed between them.

49. Mr. So's evidence is that when he went back to the office he did not see Mr. Wong, who was absent at the time, but instead of waiting for him, or making an arrangement to see him, as one might expect him to do, he says he spoke to Ng Sze Cheen about it.

50. His reasons for doing this I find unconvincing.

51. It is at this stage he claims the second memorandum was signed by Ng Sze Cheen, and, being satisfied, he returned to the solicitors office and signed the tenancy agreement.

52. The original of the second memorandum has not been produced to me, only a photocopy. Mr. Ng denies that the signature is his. No mention was made by Mr. So to the solicitors of this document which purported to add to or vary the tenancy agreements.

53. This, taken together with the circumstances described by Mr. So of the creation of the memorandum make me unable to accept on a balance of probabilities that this is a genuine document.

54. Even if it were, from what I have said before about the status of Mr. Ng in the company, which by that time must have been well known to Mr. So, it could not possibly be legally binding on the Plaintiff.

55. Although it is probably superfluous, I would also add that the wording of the memorandum itself is fatal to Mr. So's case. This is to the effect that a "priority to renew" the tenancy arises "upon expiry of the term of three years with no arrears of rental".

56. Mr. Woo has valiantly tried to persuade me that this means no arrears on the last day of the tenancy, an argument forced upon him by the unfortunate fact of Mr. So's permanent arrears throughout the whole of the two tenancies, until clearing them off 5 days before the final day of the tenancy by paying the last month's rent, 22 days late.

57. This interpretation of the words defies common sense, and an agreement such as that would be impossible to implement, if the parties did not know until the last day of a tenancy whether it would be renewed.

58. The final matter which defeats the Defendants case is clause 10 of the second tenancy agreement, which reads as follows:-

"This agreement sets out the full agreement reached between the parties and no other representations have been made or  warranties given relating to the Landlord, the Tenant, the building, the premises or this tenancy and if any such representation or warranty has been made given or implied the same is hereby waived."

 

59. During the course of this hearing Mr. Woo applied to amend the Defence to add a prayer for rectification of the agreement by deleting clause 10 on the basis that the 1st Defendant did not agree to its inclusion. I allowed the amendments to be made without re-service.

60. However, I am quite satisfied that this is not a case where I should order rectification. It is not, as Mr. Woo has argued, a case of common mistake. That neither party knew it was there makes little difference. Mr. So claims the whole agreement was not interpreted to him. That may well he so. But if he chooses to sign a document when he has ample time and apportunity to take it away and have it interpreted, and does not, in the absence of fraud or misrepresentation, which is not alleged here, he cannot be heard to complain.

61. Mr. Wong admits that he did not read the document before signing for the Plaintiff. But common lack of knowledge of a term in an agreement is not the same as common mistake.

62. There is no evidence here that the agreement contains something different to that intended by the parties, or that the clause is unusual.

63. Mr. So knew the nature of the agreement, knew the basic terms of the agreement and he apparently did not ask for details of all the other terms, yet he signed the agreement and on the principles enunciated by Scrutton L.J. in L'Estrange v.F. Graucob Ltd. [1934] 2KB 394 at p.403 that:

"When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the  ning it is bound, party sigand it is wholly immaterial whether he has read the document or not."

 

64. I therefore find, for the reasons given above, that from the signing of the second tenancy agreement that was the only contractual agreement between the Plaintiff and the 1st Defendant, as agent for the 2nd Defendant, and that the notice of termination given by the Plaintiff on 29th August 1989 validly terminated the 1st Defendant's tenancy on 20th March 1990.

65. There will accordingly be judgment for the Plaintiff in terms of paragraphs (1), (2), (3), (4) and (5) of the prayer of the Statement of Claim, with mesne profits at the rate agreed by the parties to be the market rate, namely $42,500.00 per month, from 21st March 1990 to the date vacant possession is delivered up to the Plaintiff, and costs to be taxed on an indemnity basis pursuant to clause 11 of the second tenancy agreement, with certificate for counsel. The Counterclaim is dismissed.