FULL HERO ENTERPRISES LTD v. ANRICH PROPERTIES LTD

HCA2913/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2913 OF 2000

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J U D G M E N T

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1.  This action arises out of a tenancy agreement between the plaintiff and the defendant in respect of a shop in Mongkok, Kowloon.  The plaintiff claims for the return of the rental and management fee deposits together with damages for breach of agreement.  By way of counterclaim, the defendant claims against the plaintiff for loss of rental and management fees as damages for wrongful termination of the tenancy agreement.  The core dispute is whether the defendant was obliged under the agreement to designate toilet facilities and to issue a toilet allocation certificate to enable the plaintiff to obtain a food licence from the then Urban Services Department.    

The background

2.  The defendant is the registered owner of the building standing at No.50 Shantung Street, Kowloon (“the Building”).  CTMA Management Limited (“CTMA”) is responsible for the management of the Building.  The two companies are related companies.  They share the same registered office and operate from the same office premises.  Not only do they have common directors, but they also share the same staff.

3.  The ground floor of the Building is partitioned into four shops.  Shop A is adjacent to Shop B while Shop C is adjacent to Shop D.  In between Shop B and Shop C is an entrance leading to a staircase that goes up to the first floor of the Building.

4.  There is no toilet inside the shops. There is only one toilet on the ground floor, which can only be accessed from a rear lane adjacent to the Building.  At the entrance of the toilet is a red gate, which is locked from the outside.  Inside the toilet are two cubicles and two washing basins. 

5.  On 10 September 1999, the plaintiff entered into a Chinese provisional tenancy agreement with the defendant in respect of Shop C (“the Provisional Agreement”).  The agreement was concluded through Centaline Estate Agency.  The estate agent involved is Mr Trevor Li.

6.  On 28 September 1999, the plaintiff executed the formal tenancy agreement, which was dated 13 November 1999 (“the Tenancy Agreement”). 

7.  Under the Tenancy Agreement, Shop C was let to the plaintiff for a term of two years commencing from 28 September 1999 at the monthly rental of $63,000 exclusive of management fees, rates and other outgoings. 

8.  Pursuant to the Part IV of the Fourth Schedule, the plaintiff had paid to the defendant a rental deposit of $189,000 and a management fee deposit of $6,000.

9.  Under clause 24(i) of Section III and the Fifth Schedule, the plaintiff could only use the premises as “noodles and sugar soup shop”.

10.  The plaintiff commenced business at Shop C on 18 October 1999 under the style name of “亞妹食店”, selling cooked noodles and Chinese sweet soup. 

11.  In the meantime, the plaintiff had applied to the Licensing Section of the Urban Services Department for the issue of a food business licence.  For the purpose of fulfilling the requirements for the licence application, the plaintiff requested the defendant to issue a toilet allocation certificate.  The defendant did not issue the certificate requested.  The plaintiff was unable to obtain the food business licence.  One of its directors was subsequently prosecuted for operating an unlicensed food business.

12.  Between December1999 and January 2000, the plaintiff and the defendant, through their respective solicitors, corresponded on the issues of provision of designated toilet facilities to the plaintiff and the toilet allocation certificate.

13.  By letter dated 31 January 2000, the plaintiff’s solicitors wrote to accept the defendant’s repudiatory breach and purported to deliver up possession of Shop C.

14.  The defendant’s then solicitors responded by letter dated 23 February 2000, contending that the plaintiff had repudiated the agreement by the unilateral delivery of possession.  The defendant indicated it accepted the plaintiff’s repudiation and demanded the plaintiff to remove the items that had been left in the shop. 

15.  On 28 February 2000, the workmen engaged by the plaintiff attended Shop C and removed all the items that were left there.

16.  In December 2000, Shop C was let out by the defendant at the monthly rent of $51,000.

17.  On 18 March 2000, the plaintiff issued the Writ herein.

The claim

18.  The thrust of the plaintiff’s claim as appeared by the Amended Statement of Claim is that under the Tenancy Agreement, the defendant is under an implied term and obligation to provide a toilet allocation certificate for the purpose of the plaintiff’s application to the then Urban Services Department for a food business licence.  The plaintiff claims that the defendant was in breach of this implied term and obligation. 

19.  The Amended Statement of Claim further pleads that the defendant’s failure to provide the toilet allocation certificate was a breach of an implied condition precedent to provide all necessary documents and to carry out such other acts as would facilitate the plaintiff to comply with clause (18) of the Tenancy Agreement. Under clause (18), the plaintiff is obliged to indemnify the defendant against breach of, inter alia, statutory requirements in relation to its business.  In his closing submissions, Mr Li who appeared for the plaintiff put this part of the claim on the basis that the defendant was under an implied duty not to do or omit to do anything to prevent the plaintiff from performing the obligations under the Tenancy Agreement and not to render itself impossible to perform the terms under the Tenancy Agreement.  It was submitted that the defendant was in breach of this implied duty.

20.  There is also a plea of common mistake in the Amended Statement of Claim. This was not pursued at the trial.

21.  Mr Li had also sought initially to argue a case of breach of an express term by reference to Special Condition 5 of the Tenancy Agreement.  The point was not pursued after it was pointed out that this was not pleaded in the Amended Statement of Claim.

22.  The plaintiff claims for the return of the rental and management fee deposits in the sum of $195,000.  By way of loss and damages, it also claims the expenditure incurred on renovating and fitting out Shop C as well as costs of removing the items from the premises in the respective sum of $288,740 and $4,300.  The claim for loss of profits, which had not been particularized, is not pursued.  The amount of the claim totals $488,040.

The defence and counterclaim

23.  The defendant denies the existence of any implied term.  The defendant also denies any knowledge of the requirements for the issue of food business licence, whether in general or with specific regard to the plaintiff’s business on Shop C.  The defendant avers it had duly performed its obligation under the Tenancy Agreement to provide a toilet for use in common with other tenants.

24.  The defendant further avers that the plaintiff had wrongfully repudiated the agreement and counterclaims for loss of rental for January to December 2000 and partial loss of rental from January to December 2001 in the respective amounts of $756,000 and $108,000 as well as management fees for the period from January to November 2000 totalling $24,000. 

25.  At the trial, the defendant concedes that the plaintiff had paid the rent and management fee for January 2000 and that credit should be given for the rental and management fee deposits held by it. 

The issues

26.  The principal issues to be resolved at the trial are:

(1)         Whether the Tenancy Agreement contains the implied terms contended by the plaintiff.

(2)          Whether the defendant is in breach of any of the implied terms contended by the plaintiff.

(3)          In the event the defendant is held to be in breach of the implied term(s), whether the plaintiff is entitled to recover the full amount of its decoration costs and/or the costs of removal.

(4)          In the event the defendant succeeds on the counterclaim, whether the defendant had discharged its duty to mitigate its loss.                                           

Food Business (Urban Council) By-Laws, cap.132Y

27.  Before looking with the evidence of the case, it is apt to mention the statutory requirements governing the operation of the plaintiff’s business. 

28.  Under section 32(1) of the Food Business (Urban Council) By-Laws, cap.132Y (“the By-laws), which had since been repealed, a licence from the then Urban Services Council was required for carrying out food businesses, including a restaurant.   Further under section 34(1)(c), one of he conditions for the grant of a food business licence is that the premises for the business are provided with sanitary fitments of a standard required by the Building (Standards of Sanitary Fitments, Plumbing, Drainage Works and Latrines) Regulations, cap.123I. 

29.  As explained by the Guide to Application for Restaurant Licences issued by the Food and Environmental Hygiene Department, which took over the work of the Urban Services Council, where no sanitary fitments are provided within the business premises, communal toilets in the building allotted for the exclusive use of customers and staff of the restaurant business can be accepted for the purpose of the licence application: see paragraph 16 of the January 2000 edition.  In such a case, the applicant must produce to Licensing Authority a toilet allocation certificate, which is issued either by the management office or the owner of the building.  The Guide also states that labels should be affixed to the appropriate sanitary fitments to indicate the specific use of the toilets by the staff and customers of the restaurant.     

30.  It is against this backdrop that the dispute between the parties over the allocation of toilet facilities for the plaintiff’s use and the provision of a toilet allocation certificate arose. 

The evidence of the plaintiff’s witness

31.  Two witnesses had testified at the trial.  They are Chan Mei Yu, the plaintiff’s director, and Mr Ng Chi Kin, the defendant’s director.  They were responsible for the execution of the Provisional Agreement and the Tenancy Agreement.  It is however common ground that they had not met each other prior to or at the execution of the documents and all the negotiations of the tenancy were conducted through Mr Trevor Li. 

32.   Madam Chan gave evidence that she has been involved in the food business since 1992.  Before 1999, she had experience of operating congee and noodle shops and Hong Kong style café (茶餐廳).   She was therefore aware of the requirements for obtaining food business licence, which is a prerequisite to operating a food business.

33.  In about late August 1999, Madam Chan had her eyes on Shop C.  Through the arrangement of Mr Trevor Li, she and two other directors of the plaintiff made two visits to inspect Shop C.  They were shown the shop, which was vacant, and also the toilet on the ground floor.    

34.  Madam Chan noticed that Shop D was then occupied by a store selling soft drinks, fruit juices and snacks while Shops A and B were unoccupied.

35.  It is Madam Chan’s evidence that she had informed Mr Li that the plaintiff would be selling cooked noodles (車仔麵) and Chinese sweet soup (糖水).  She further informed Mr Li that for the intended food business, the plaintiff required to be allocated with a toilet for its exclusive use (專用厠所) and be provided with a toilet allocation certificate (專用厠所證明書) for the purpose of its licensing application.

36.  Madam Chan said Mr Li assured her that the requirements could be met.  He further indicated that the toilet cubicle near the wall was the one to be allocated to the plaintiff.  At the time of Madam Chan’s inspection, there was no name plate or signage affixed on the door of either of the two cubicles.

37.  Moreover, in order to accommodate the special request for the allocation of toilet facilities, a handwritten clause (18) was inserted into the Provisional Agreement.  It provides that the defendant would provide to the plaintiff the use of communal toilet (業主提供公用洗手間給租客使用).  Madam Chan, Mr Li and Mr Ng of the defendant had all initialled against the insertion.

38.  On 28 September 1999, Madam Chan and the other two directors of the plaintiff attended the office of the solicitors, Tony Kan & Co (“TKC”) to sign the Tenancy Agreement.  Neither of them read English.  A Mr Danny Lau went through the main terms of the Tenancy Agreement with them.  When they enquired about the allocation of toilet facilities and the issue of a toilet allocation certificate, Mr Lau referred to Special Condition 5 in the Seventh Schedule and told them that their requirement was covered by the clause.  Special Condition 5 states:

“The Landlord shall provide the Tenant with the use of toilet of the Building designated by the Landlord in common with the Landlord and all other persons authorized by the Landlord during the term hereby created.”

Mr Lau also told them to contact the management office to fllow up on the issue of the toilet allocation certificate.

39.  After the execution of the Tenancy Agreement, two sets of keys were given to the plaintiff.  The first is for access into Shop C.  The other is for opening the red gate to the toilet on the ground floor.

40.  Thereafter, the plaintiff instructed their contractor, Chiu Tat Engineering Ltd, to proceed with the decoration and fitting out of Shop C as well as the application for a food business licence.   The licence application was submitted on 26 October 1999.  It was accompanied by two sets of plan prepared by the contractor on the plaintiff’s instruction.  The plans identified Shop C and also the toilet cubicle and washing basin that Mr Li had previously said were designated for the plaintiff’s use.  

41.  Madam Chan said that throughout this period, she had repeatedly visited and telephoned the office of CTMA to chase up on the toilet allocation certificate.  She eventually managed to speak to a Miss Hui of CTMA, who said she would contact the landlord on the matter.  There was otherwise no substantive reply.  Madam Chan did not know at the time that CTMA and the defendant are related companies and share the same office.

42.  In the meantime, the Urban Services Department made two inspections of Shop C and the ground floor toilet in November 1999.  The licence application was held up as the plaintiff was unable to produce to the Department the toilet allocation certificate.

43.  Then in late November or early December 1999, Madam Chan discovered that name plates bearing the trade names of Shops A and D (i.e. 山水冰站 and 好好美食) were affixed on the doors of the two cubicles and on the two washing basins.  Madam Chan said she was shocked and went to look for Miss Hui, but the reply she received was evasive.

44.  The plaintiff eventually instructed solicitors to take up the matter with the defendant.  By two letters dated 24 and 30 December 1999, Liu Choi & Chan (“LCC”) wrote on behalf of the plaintiff to demand for the provision of a designated toilet. 

45.  On behalf of the defendant, TKC replied by letter dated 4 January 2000.  The material part of the letter reads:

“We are instructed that our client has never received any complaint that your client has any difficulty in the using of toilet facilities and that your client all along well knows where to use the toilet facilities from time to time under designation by our client through the manager of the building.

For avoidance of doubt, we are instructed by our client to confirm to your client that with effect from the 1^st January 2000 and until further notice, your client may use the toilet facilities on the 1^st floor of the building, in common with such other persons as may be authorised by our client.”

46.  LCC wrote back on the same day pointing out that Madam Hui of CTMA had informed the plaintiff that there was no toilet in the building that could be designated for the plaintiff’s use as all toilets in the building had been designated for other tenants’ use.  In reply, TKC said that Madam Hui only said there was no separate and independent toilet in the building for the exclusive use by the plaintiff.

47.  This was followed by further correspondences between the solicitors.  By letter dated 29 January 2000, LCC demanded the defendant to allocate toilet facilities to the plaintiff and to provide the toilet allocation certificate by 31 January 2000.   This was met with no response. 

48.  By letter dated 31 January 2000, LCC on behalf of the plaintiff accepted the defendant’s repudiation breach and sought to deliver possession of Shop C to the defendant by returning the two sets of keys.

49.  Some three weeks later, TKC wrote back on 23 February 2000 to point out that the plaintiff’s delivery of possession was without the defendant’s consent, thus amounted to repudiation of the Tenancy Agreement. TKC indicated that the defendant accepted the plaintiff’s repudiation and demanded the plaintiff to remove the chattels left inside Shop C.

50.  On 28 February 2000, the plaintiff arranged for transportation workers to remove all the chattels that were left on Shop C.

51.  Madam Chan explained that the indication in TKC’s letter dated 4 January 2000 that the plaintiff could have the use of the 1^st floor toilet was unworkable.  This is because the toilet was located inside a restaurant called Wan Loi Restaurant (雲來菜館).  It transpired from Mr Ng’s evidence that Wan Loi Restaurant was operated by a company that was related to or associated with the defendant.

52.   In cross-examination, Madam Chan refuted the suggestion that the plaintiff could have operated a noodle and sugar soup shop without a food business licence.  She pointed out that the plaintiff was operating a food business (食肆) selling cooked food (熟食) and noodles (車仔麵), such that the suggestion that it could have sold dried noodles or food that did not require heating up or processing (加工) is unthinkable and out of the question.

53.  Under re-examination, Madam Chan confirmed that because there were no toilet facilities inside Shop C, the plaintiff required a communal toilet (公用洗手間) that was designated for its exclusive use (專用) and a certificate from the landlord or management office certifying this so as to meet the requirements for the issue of food business licence.

The evidence of the defendant’s witness

54.  Mr Ng Chi Kin was both a shareholder and director of the defendant and of CTMA.  He was responsible for dealing with Mr Trevor Li in connection with the conclusion and signing of the Provisional Agreement and the Tenancy Agreement.  On his evidence, the management of the tenancy was left to Miss Hui and the staff of the defendant and CTMA.  

55.  The main points of Mr Ng’s evidence is that the plaintiff had never made known to the defendant of its need and request to have a toilet allocated for its exclusive use and/or be provided with a toilet allocation certificate.  By the time the plaintiff raised the request, the defendant had already agreed with the tenants of Shops A and D to provide them with designated or exclusive toilet and the toilet allocation certificate. Since there are only two toilet cubicles on the Ground Floor, the defendant was unable to grant the plaintiff’s request.   

56.  More specifically, Mr Ng gave evidence that Shop A was let to a Madam Wan for operating a business selling Taiwanese snacks under the style name of “山水冰站” with the provisional tenancy agreement being signed in July 1999.  The formal tenancy agreement was dated 4 August 1999.  He was unable to say when it was that Shop A commenced business.   His evidence was that at the time the provisional tenancy agreement for Shop A was made, Madam Wan had requested to have an exclusive toilet (專用洗手間).  He said the defendant agreed to this and did issue to Shop A the toilet allocation certificate dated 25 July 1999, but on the understanding that Shop A was to use the Ground Floor toilet in common with other tenants.  A monthly licence fee of $2,000 was paid by Shop A in consideration for the arrangement. 

57.  In the case of Shop D, Mr Ng’s evidence is that when it was first let out in early 1999, the tenant had not requested for an exclusive toilet. In about middle of October 1999, the tenancy was assigned to a Luxury Hong Kong Limited (“Luxury”) for operating a snack shop under the trade name of “好好美食”.  The business of Luxury was similar to that of the previous tenant.  Luxury, however, requested for a toilet allocation certificate. Mr Ng said that since the defendant had only issued one such certificate to Shop A, it was in a position to issue a second certificate.  Accordingly, the defendant did issue the certificate to Shop D.  A copy of the certificate is in evidence.  Its content is identical to that of the certificate issued to Shop A. However, it was undated.  

58.  Unlike in the case of Shop A, Shop D’s tenancy agreement did not provide for the payment of any licence fee.  Mr Ng’s evidence is that there was an adjustment in Shop D’s rent in return for the arrangement. He referred to Special Condition 6 in the Seventh Schedule that provided for the payment of $30,000 as additional security by 7 July 2001 and said this evidenced an upward adjustment of the rent.   It would however appear that the increase in of deposit is by reason of the parties’ agreement to have a rental increase during the term of the tenancy as appeared by Part I of the Fourth Schedule of Shop D’s tenancy agreement.  Under Part I, it was provided that the monthly rental for Shop D was to be increased by $10,000 as from 7 July 2001. 

59.  It is also to be noted that there was no disclosure of the provisional tenancy agreements for Shops A and D during discovery.  In the course of Mr Ng’s evidence-in-chief, Mr Lam who appeared for the defendant initially sought to produce these provisional tenancy agreements, but did not pursue it in light of the plaintiff’s objection.  However, it is not disputed that the provisional tenancy agreement for Shop D was dated 16 November 1999.

60.  In respect of the plaintiff’s tenancy, Mr Ng’s evidence is that in about September 1999, Mr Trevor Li approached the defendant to discuss about the tenancy.  He accepted that Mr Li had asked the defendant about the use of toilet and, in response, the defendant indicated that the plaintiff would have the use of a communal toilet (公共洗手間).  This explained the insertion of clause (18) in the Provisional Agreement as well as Special Condition 5 in the Seventh Schedule of the Tenancy Agreement.      Mr Ng denied Mr Li or the plaintiff had informed the defendant that the plaintiff had required to be allocated with toilet facilities for its exclusive use.

61.   Both in chief and in cross-examination, Mr Ng stated that it was mid-October 1999 that he first learnt of the plaintiff’s request to have a toilet allocation certificate. It is also his evidence in chief that by mid-October 1999, the defendant had already issued two toilet allocation certificates to Shops A and D, thus was not in a position to issue a third certificate.  Mr Ng also said on several occasions that the negotiation with Luxury over the tenancy for Shop D and the transfer of tenancy to Luxury took place in mid-October 1999.  It was only after it was put to him that Luxury’s provisional tenancy agreement for Shop D was only signed on 16 November 1999 that he retracted from the earlier evidence and said he could not remember the exact date(s). Nevertheless, he maintained that when the plaintiff made the request, the defendant had already committed to provide Shop D with the certificate.       

62.  On the other hand, Mr Ng accepted that when the Tenancy Agreement was executed, he was aware that Shop C was to be used for the business of a noodle and sweet soup shop.  He further said he did at the time suspect that the plaintiff would need exclusive toilet facilities to operate the business.  However, he denied he had knowledge that a toilet allocation certificate was part of the requirements for a food business licence application.  He explained that despite his suspicion, he had not felt the need to clarify the position with Mr Trevor Li because he understood the plaintiff to be experienced with the licensing matter.  He said it was for the plaintiff to raise it and specify it in the Provisional Agreement.

Assessments of the evidence

63.  Looking at the evidence of Madam Chan and Mr Ng and viewing it against other available evidence and the circumstances of the case, I am of the view that Madam Chan’s evidence is to be preferred as being inherently more probable whereas Mr Ng’s evidence is in several important aspects inherently unreliable and unconvincing.  I consider Madam Chan to be a straightforward and frank person.  Mr Ng, on the other hand, is more sophisticated and not forthcoming.

64.  A critical aspect in the defence case and also of Mr Ng’s evidence is that the plaintiff did not request to be allocated with exclusive toilet facilities and/or be given a toilet allocation certificate when the Provisional Agreement or the Tenancy Agreement was made, and that it was after the defendant had already issued or committed to issue toilet allocation certificates to Shops A and D that the plaintiff asked for the certificate.  As noted above, Mr Ng’s account that the provisional tenancy agreement with Luxury over Shop D was made in about mid-October 1999 is admittedly faulty.  Although he sought to remedy the mistake by saying that he could not remember the exact date(s), he had not clarified whether he was also mistaken as to the time he said the plaintiff first requested for the certificate.  This is important.  If he was right when he said the plaintiff only made the request in mid-October 1999, then his evidence that by then the defendant was not in a position to issue a “third” certificate must be untruthful.  Indeed, this aspect of the defence will also be rendered untenable.  If he was also mistaken when he said the plaintiff first made the request for certificate in mid-October 1999, then in light of the importance of this point to the defence case, it is incumbent upon him to explain what caused him to volunteer in his evidence the date of mid-October 1999.  The fact that he never explained why he repeatedly refereed to mid-October 1999 casts a serious doubt in his evidence. 

65.  Objectively speaking, the plaintiff commenced business in mid-October 1999.  The documents show that the plaintiff’s licence application was made in October 1999.  The first appointment with the Urban Services Department in connection with the licence application was on 2 November 1999.  It is therefore inherently improbable that the plaintiff’s request for the certificate would be made after 16 November 1999, being the date when the provisional tenancy agreement with Luxury over Shop D was signed.  Madam Chan’s evidence that she had chased for the certificate before the licence application was submitted is more probable and credible.

66.  In addition, the plaintiff’s licence application was accompanied by two sets of plan.  Among other things, the plans had identified one of two toilet cubicles and also one of the two washing basins in the Ground Floor toilet as the toilet facilities designated for the plaintiff’s use.  This is indicative and supportive of Madam Chan’s evidence that Mr Trevor Li had identified to her the cubicle and washing basin that were allocated to the plaintiff’s use.  In my view, it is more probable than not that Mr Li made the identification on the defendant’s direction and instruction.  As accepted by Mr Ng, Mr Li had in the course of negotiation specifically asked the defendant about the use of toilet facilities.  There is no conceivable reason for Mr Li not to hold back the plaintiff’s request for the allocation of exclusive toilet facilities and the issue of toilet allocation certificate.  There is also no conceivable reason for Mr Li to arbitrarily point at a cubicle and a washing basin and tell the plaintiff that these were toilet facilities allocated to it, without first consulting the defendant.      

67.  Moreover, if indeed Mr Trevor Li never told the defendant of the plaintiff’s request for allocation of exclusive toilet facilities, it is difficult to understand why the defendant would in January 2000 offered the plaintiff to have the use of the toilet on the first floor.  This is particularly odd when on the defendant’s case, notwithstanding the issue of the toilet allocation certificates to them, the tenants of Shops A and D had agreed to use the ground floor toilet in common with other tenants.  This is also borne out by Special Condition 5 and Special Condition 4 in the Seventh Schedule of the tenancy agreements of Shops A and D. It is also not in dispute that throughout the plaintiff had the keys to the ground floor toilet. Hence, if it was the defendant’s understanding and belief that its contractual obligation was merely to provide communal toilet facilities to the plaintiff, it would not have been necessary for the defendant to incur the trouble of offering the use of the toilet facilities within another restaurant and on another floor.

68.  In support of the defendant’s case that at the time of the negotiation of the tenancy, the plaintiff had not asked for allocation of exclusive toilet facilities and a toilet allocation certificate, Mr Lam submitted that Madam Chan and her business partners might not be familiar with the relevant requirements for food business licence.  I reject this submission.  In the first place, this had never been put to Madam Chan.  Despite that she had given evidence of her experience in the food business and she had also said she was aware of the need to be allocated with toilet facilities for the exclusive use of the business and to have a toilet allocation certificate, she was not cross-examined or contradicted on these aspects of her evidence.  There is no proper basis and it is not open to the defendant to suggest in submissions that Madam Chan did not know or was unfamiliar with the licensing requirements.  Secondly, even on the defendant’s case, Mr Li had on the plaintiff’s behalf raised question as to the use of toilet facilities. This goes to show that Madam Chan was obviously concerned about the provision of toilet facilities. This is also supportive of her evidence that she was aware of the toilet facilities aspect of the licensing requirements.

69.  Mr Lam also submitted that had Madam Chan known that a toilet allocation certificate and the allocation of toilet facilities for exclusive use was required, she could not possibly have agreed to Clause (18) of the Provisional Agreement and Special Condition 5 of the Tenancy Agreement since they only provide for communal toilet or the use of toilet in common with other tenants.  Madam Chan had explained that she considered the defendant’s agreement in clause (18) of the Provisional Agreement to provide a communal toilet for the plaintiff’s use was sufficient to cover the plaintiff’s request to be allocated with toilet for its exclusive use.  Mr Lam criticised her explanation as unthinkable.  However, it should be noted that the term “公共洗手間” (communal toilet) was a term used in the Guide to Application for Restaurant Licences, even though the Guide also mentioned that the communal toilet should be allocated for the exclusive use of the business.  Looking at the matter as a whole, I do not agree that it is implausible for a person like Madam Chan to take the view that clause (18) had already covered the plaintiff’s request, bearing also in mind the assurances that Mr Trevor Li had given her.   AS to Special Condition 5 in the Seventh Schedule of the Tenancy Agreement, Madam Chan had explained that she was relying on Mr Danny Lau’s explanation and advice as she did not read English.  It is plainly not unreasonable for her to do so.

70.  Mr Lam further submitted that there was no reason for the plaintiff to submit the application before it received the toilet allocation application from the defendant.  He said this is indicative of Madam Chan’s ignorance of the licensing requirements.  In my view, this can also be indicative of the plaintiff not under any expectation that the certificate would not be issued.  This in turn supports her case that she believed by the Tenancy Agreement, the plaintiff had secured the defendant’s agreement to issue the certificate.

71.  Turning to another important aspect of the defendant’s case, namely, the defendant had no knowledge and notice of the statutory requirements on sanitary fitments for the purpose of a food business licence application.  Mr Ng initially claimed he knew nothing about the legal requirements for operating food businesses, whether generally or with specific reference to the plaintiff’s noodles and sweet soup business.  In cross-examination, he conceded that with his past experience, he was aware that tenants who operated food businesses might require toilet allocation certificates in connection with their licensing applications.  He conceded that he had heard of the toilet allocation requirement. In my view, the initial claim of ignorance is an attempt to make the defendant’s case that the plaintiff did not request for the toilet allocation certificate more credible.  However, Mr Ng gave himself away when he said he had at the time of the negotiation of the tenancy suspected that the plaintiff would require an exclusive toilet. 

72.  I have no doubt that Mr Ng knew both from his experience and also from being told by Mr Trevor Li that the plaintiff required toilet facilities for its exclusive use and a toilet allocation certificate in connection with its food business licence application and for the purpose of operating its business legally.  I also find that when Mr Li identified to Madam Chan the cubicle and washing basin in the ground floor toilet, he did so after consulting with the defendant and obtaining its instruction.  I do not accept Mr Ng’s evidence that it was after the defendant had already issued or committed to issue the toilet allocation certificates to Shops A that the plaintiff first requested for an exclusive toilet and a toilet allocation certificate.  I accept Madam Chan’s evidence about her many requests made to and through CTMA for the provision of the toilet allocation certificate and that after she discovered the affixation of Shops A and D’s name plates on the toilet cubicles and washing basins that she turned to solicitors for assistance.

Analysis of the claim

73.  The thrust of the plaintiff’s claim is in breach of implied term and duty.  A modern exposition of the conditions or requirements for an implied term is to be found in B P Refinery (Westernport) Pty Ltd v. President, Councillors and Ratepayers of Shire of Hastings [1978] 52 ALJR 20.  In giving the majority opinion, Lord Simon stated (at p.26):

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

74.  In the present case, the following facts and circumstances are relevant to the consideration of an implied terms and duties contended by the plaintiff:

(1)    The only permitted user under the Tenancy Agreement is a noodle and sugar soup shop.

(2)    The plaintiff was required by law to obtain a licence in order to operate its business.

(3)     The plaintiff was further obliged under the Tenancy Agreement to keep the defendant indemnified against any breach of statutes in relation to the operation of its business.  

(4)     Given that there were no sanitary fitments within Shop C, the plaintiff required, for the purpose of its licence application, to have the use of communal toilet facilities allocated for its exclusive use and also a toilet allocation certificate.

(5)    The defendant through Mr Ng was aware of the matters in (1) to (3) above.

(6)    The defendant through Mr Ng also knew that the plaintiff required to be allocated with toilet facilities for its exclusive use and be provided with a toilet allocation certificate, and that the exclusive toilet facilities and toilet allocation certificate were necessary for the plaintiff’s licensing application.   

75.  Applying the principles summarized by Lord Simon, I am of the view that there is an implied term under the Tenancy Agreement that the defendant was to provide to the plaintiff a toilet allocation certificate for the purpose of the plaintiff’s application for a food business licence. 

76.  Such a term is not inconsistent with the express term in Special Condition 5.  This is because as in the case of Shops A and D, although their tenancy agreements also provide for the use of the ground floor toilet in common with others, a toilet allocation certificate was issued to each of them.  It is also Mr Ng’s evidence that this was an accepted practice and the defendant’s lawyers had advised that this was in order.  In addition, it is clear from the general tenor of Mr Ng’s evidence that it was because the Tenancy Agreement did not specifically provide for the issue of the certificate that the defendant did not issue it to the plaintiff.  It is not his evidence that the defendant would not have agreed to provide the certificate.  The reference to clauses (11) and (19) in Section IX of the Tenancy Agreement is irrelevant as they have no effect on an implied term.

77.  On the facts as found, the defendant was clearly in breach of this implied term and duty.

78.  I also agree that the defendant was under an implied duty not to do or omit to do anything to prevent the plaintiff from performing the obligations under the Tenancy Agreement and not to render itself impossible to perform the terms under the Tenancy Agreement. 

79.  In agreeing to let Luxury affix a nameplate on the other toilet cubicle and washing basin, the defendant had rendered itself unable to perform its obligation to the plaintiff.  This in turn prevents the plaintiff from complying with the contractual obligations of operating a food business legally at Shop C as provided for in the Tenancy Agreement. 

80.  Mr Lam had in cross-examination, put to Madam Chan and submitted in closing submission that it was possible for the plaintiff to operate a noodle and sugar (sweet) soup shop without a licence.  It was suggested that this was possible if the plaintiff’s business did not involve processing and heating up of food, such as the sale of dried noodles.  I agree with Madam Chan that the suggestion is unrealistic. There is no merit in this argument. 

Damages

81.  In short, the plaintiff has made out its claim for breach of implied terms and duties.  It follows that it is entitled to the return of the rental and management fee deposit.  As to the renovation and fitting out costs, I accept Mr Lam’s submission that account should be taken of the fact that the plaintiff had used Shop C up to 31 January 2000.  The suggestion that the plaintiff should only be compensated for 5/6^th of the renovation and fitting out costs is a reasonable one.  I also agree that the removal costs should not form part of the damages.  They are costs that the plaintiff would have to incur even if the tenancy were to expire by effluxion of time. 

Conclusion

82.  For the above reasons, I enter judgment for the plaintiff for the sums of $195,000 and $240,617 (i.e. 5/6 x $288,740) together with interest at judgment rate from the date of Writ to date of payment.  The counterclaim is dismissed.

83.  Applying the normal rule of costs follow event, I also make an order nisi that the defendant pays the plaintiff the costs of this action to be taxed if not agreed.  When the case was commenced in March 2000, it exceeded the jurisdiction of the District Court.  So was the counterclaim.  Despite the increase of the jurisdiction in September 2000, neither party has applied to transfer the case to the District Court.  In the circumstances, notwithstanding that the judgment sum awarded comes within the jurisdiction of the District Court, I consider it appropriate to have the costs taxed on High Court scale.

84.  As to the $180,000 the plaintiff had paid into court as security for costs, I order that the amount together with any interest accrued be forthwith paid out to the plaintiff through its solicitors.