KINGDOM POWER DEVELOPMENT LTD v. DYNAMIC WISE TRADING LTD AND ANOTHER

DCCJ5019/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5019 OF 2003

_______________________

J U D G M E N T

_______________________

1. These are Order 14 proceedings, by which the Plaintiffs seek possession of what is described as the staircase area directly underneath the staircase on the ground floor of a building at 22 and 24 Russell Street, Causeway Bay ("the building"). The action is brought in trespass, and apart from possession, there are also claims for injunctions requiring the Defendants to reinstate the staircase area and to repair it, together with a claim for damages for trespass which, presumably, will need to be adjourned for assessment.

2. The facts are entirely straightforward. The Plaintiff purchased the building from the receivers of the former owners, Super Quick Limited (SQL) on 28 March 2003.

3. During the course of their ownership of the building SQL had let the 1st and 2nd floor of No. 22 and the 2nd floor of No. 24 to the 1st Defendant under three tenancy agreements dated 30 August, 20 November 2001 and 4 September 2002. They also let the 1st floor of No. 24 to the 2nd Defendant, who is the controlling shareholder and director of the 1st Defendant, under a tenancy agreement dated 19 August 2002.

4. Annexed to the tenancy agreements of 4 September, relating to the 1st Defendant and of 19 August, relating to the 2nd Defendant were two letters written in Chinese, the tenancy agreements having been prepared in English. SQL purported "to provide the ground floor area underneath the staircase for free to the tenants of the 1st and 2nd floor ... to use as storage and the mounting of light boxes." These letters [in translation] are at pages 134B and 135B of the bundle. As appears in these letters, this "provision" of the staircase area was for the term of the tenancy and is expressed to be "for free".

5. The Plaintiffs, as the new owners, say that this arrangement, to put it neutrally, can at best only be a bare licence which, on good authority, cannot survive the assignment of the building by SQL to them with the result that the Defendants have no right to remain there, hence their continued occupation must amount to an act of continuing trespass, to which there can be no answer, with the consequence that there must be summary judgment against them together with the other consequential relief that is now sought.

6. The contrary position, which is propounded by the Defendants, is that these two letters form part of the tenancy agreements and as the assignment of the building to the Plaintiffs was subject to existing tenancies, such as these, this must determine the matter in their favour or at worst, in Order 14, they have comfortably shown triable issues which will need resolution at the trial.

7. Alternatively, a middle ground is also advanced that these letters give rise to a contractual licence and/or that the Plaintiffs have approbated the Defendants occupation of the staircase area so that they cannot now insist on possession until the expiry of the tenancies.

8. I have, of course, been helpfully referred to the well-known authorities on Order 14. The burden lies on the Defendants to demonstrate that they have raised triable issues which should be allowed to go to trial. In this matter I am essentially concerned with the true construction of documents, principally the tenancy agreements between SQL and the Defendants and the two letters in Chinese annexed to two of those agreements. It is not therefore a case of the judge being presented with what, on the surface, appears to be conflicting affidavit evidence on matters of fact, although there is some element of this in the sense that SQL's manager Mr Cheng has provided an affirmation in favour of the Defendants (page 136) to say that the letters were intended to form part of the tenancy agreements, which is not accepted by the Plaintiffs either as a matter of fact nor, of course, as a matter of law. Nevertheless, on this occasion the Plaintiffs may be in the happier position of not having to deal with matters that are said to be issues of fact which the Defendant can then rely on, at this stage, and say that such issues can only be resolved by the trial judge with the benefit of cross-examination.

9. Notwithstanding this, Miss Chow for the Defendants submits that where the court is faced with a problem that is concerned with the true construction of documents produced as a result of pre-signature discussions and negotiations the court should not come to any final conclusion about the documents without the benefit of a trial where the live evidence of the signatories of the documents will, at the very least, add colour to the documents and assist in how the documents should properly be construed.

10. In this regard she relies on the judgment of Hunter JA in Worldcap Investment Limited v Boswell Estates Ltd [1988] HKC 328. Paragraph 2 of the headnote puts the matter in the way that Miss Chow now relies on as follows:

"This was not a case where the court was in any circumstances under Order 14 going to arrive at what it conceived to be a true construction of an interlocking group of documents. Those documents all had to be looked at together against the background of the facts existing at the site at the time they were entered into. There were a whole series of facts that ought to be ascertained before the court could satisfactorily come to any conclusion on the true construction and effect of the various clauses in those documents. It was a hopeless case as far as Order 14 was concerned and that stood out on the face of the documents from the outset."

11. Whilst the facts of each case are bound to differ this decision, which plainly turned on its facts, must therefore be of limited assistance save as an indication or perhaps more accurately, an example, of a case where Order 14 will not be appropriate to cases which call for the construction of a group of documents unless of course the construction is only capable of one answer.

12. With this in mind I turn to the first aspect of the construction of these documents, which is whether these letters are part and parcel of the tenancy agreements. Miss Chow needs to demonstrate that as a matter of proper construction they are arguably so, not of course in any fanciful way, but that there is a serious case for saying so. If she can demonstrate that, then inevitably there must be a trial and Mr Lin, for the Plaintiffs, will have failed.

13. Mr Lin's first point is that none of the four tenancy agreements makes any reference to the staircase area, nor to the two letters. His next point is that each tenancy agreement contains a common "entire agreement clause" in identical terms, which is as follows:

"This agreement sets out the full agreement between the parties hereto. No other warranties or representations have been made or given relating to the landlord, the tenant, the building or the premises, or if any warranty or representation has been made, the same is hereby waived."

(see pages 66, 85, 104 and 123 of the bundle)

14. Mr Lin submits that under the terms of the letters the staircase area was to be shared by the tenants of the four parts of the building that had been let. The Defendants started their occupation of the staircase area on different dates which coincided with the dates of their respective tenancy agreements. The effect of that, says Mr Lin, is that once or, if any, of the tenancy agreements came to an end, whilst the tenancy of the remaining tenant continued the remaining tenant could not exclude a new tenant from sharing the staircase area. The point being that neither Defendant (tenant) could be said to have exclusive use of the staircase area, either jointly or alone. This occupation of the staircase area has all the characteristics of a licence.

15. He relies on the House of Lords decision in AG Securities v Vaughan and Antoniades v Villiers [1988] 3 WLR 1205, where the House of Lords heard two appeals together which raised the same point as to the nature of the occupation of different premises and as to whether such occupation amounted to a tenancy or a licence. In AG Securities v Vaughan, which Mr Lin relies on, a four bedroom flat was "let" to four occupants on different dates on terms that each had exclusive possession of his or her own bedroom, together with shared use of the other parts of the residence - kitchen, bathroom and a living room. The court held that the agreements which were independent of each other did not confer a right of exclusive possession on any one occupant. They were made on different dates and at different rents and could not be construed as a joint tenancy. The occupants had no more than licence agreements. I will return to Antoniades v Villiers presently.

16. Mr Lin submits that this is precisely the position here, with the result that the characteristics of exclusive joint possession is lacking with the result that no tenancy can be spelt out in respect of the staircase area.

17. Miss Chow contends that this way of looking at the matter is to misunderstand the process by which the staircase area was dealt with. The starting point is the evidence of Mr Cheng, SQL's manager. His material evidence is at paragraphs 9 to 13 of his affirmation (pages 139-141):

"9. I was present during the negotiations and completions of the various tenancy agreements above-mentioned. I confirm that during the negotiation of the terms of D1 Tenancy and D2 Tenancy on 4th September 2002 and 19th August 2002 respectively it was expressly mentioned by Lau Shun Kwan Michelle on behalf of both Defendants that the previous tenant of the Staircase Area blocked the entrance of the Property and would affect the business above. Accordingly, she requested (on behalf of the 1st Defendant and herself) that the Staircase Area should be leased together with the premises. In view of the Defendants entering into tenancy agreements, Super Quick agreed to lease out the Staircase Area for use by the Defendants and offered that as long as the Defendants agreed to lease the properties, Super Quick will install a metal partition of the Staircase Area so as to allow the Defendants to use the same as a storage area as well as blocking street wanderers from the area.

10. The said Ms Lau Shun Kwan also requested to use the light boxes at the Staircase Area for advertising the business above. Since Super Quick Limited had already erected the said light boxes, it had no objection to the request.

11. I also confirm that the Defendants had repainted the Staircase Area at their own expense which caused improvement to the outlook thereof.

12. Super Quick considered that the relevant tenancy agreements were simple matters and wanted to save legal costs. I confirm that the various tenancy agreements engaged with the Defendants were in standard format for convenience. The clauses were the same in each written tenancy agreements except for the schedule to be filled in with individual terms of tenancy.

13. When the D1 Tenancy and D2 Tenancy were agreed Super Quick annexed two Chinese Undertaking Letters to the respective standard tenancy agreements. The two Chinese Undertaking Letters were drafted by Super Quick without the aid of any lawyers. Although they might be drafted in a layman-sense it was drafted to the effect that the Staircase Area was one part of the leased premises of D1 Tenancy and D2 Tenancy. In any event it was the express promise by Super Quick that the Staircase Area was for the use of the defendants."

This therefore explains why the letters became physically annexed to the two relevant tenancy agreements.

18. She then relies on an important passage in Lewison J.'s (as he now is) textbook The Interpretation of Contracts 2004 Edition 3-03, which is as follows:

"A document executed contemporaneously with, or shortly after, the primary document to be construed may be relied upon as an aid to construction, if it forms part of the same transaction as the primary document. Many transactions take place by the entry into a series of contracts, for example a sale of land involving an exchange of identical contracts; a sale and lease-back of property; an agreement of sale and a bill of sale and so on. In such cases, where the transaction is in truth one transaction all the contracts may be read together for the purpose of determining their legal effect. In Smith v Chadwick, Jessel MR said:

'...when documents are actually contemporaneous, that is two deeds executed at the same moment,...or within so short an interval that having regard to the nature of the transaction the Court comes to the conclusion that the series of deeds represents a single transaction between the same parties, it is then that they are treated as one deed; and of course one deed between the same parties may be read to show the meaning of a sentence and may be equally read, although not contained in one deed but in several parchments, if all the parchments together in the view of the Court make up one document for this purpose.'

The rationale behind this principle was explained by Fletcher Moulton LJ in Manks v Whiteley as follows:

'...where several deeds form part of one transaction and are contemporaneously executed they have the same effect for all purposes such as are relevant to this case as if they were one deed. Each is executed on the faith of all the others being executed also and is intended to speak only as part of the one transaction, an if one is seeking to make equities apply to the parties they must be equities arising out of the transaction as a whole. It is not open to third parties to treat each one of them as a deed representing a separate and independent transaction for the purpose of claiming rights which would only accrue to them if the transaction represented by the selected deed was operative separately. In other words, the principles of equity deal with the substance of things, which in such a case is the whole transaction, and not with unrealities such as the hypothetical operation of one of the deeds by itself without the others.'"

19. From this she submits that one must look at the reality of the situation, which is that what the parties intended to do was to make this staircase area part of the demise of the premises as a whole. Here was the 1st Defendant, owned and controlled by the 2nd Defendant, and the landlord was content to give over by way of tenancy, the units and the staircase area. That she submits is the proper way of viewing the matter, although of course it would have been infinitely better had this intention been more professionally expressed and in one language in one document - but costs appear to have been a consideration hence the homemade way in which it had been expressed.

20. She also relies on Antoniades v Villiers (supra), the second of the two cases reported under the title AG Securities v Vaughan (supra), where a landlord, by separate but identical agreements entered into contemporaneously, had granted a young man and his girlfriend, whom the landlord knew would be living as husband and wife, the right to occupy, in his property, the top flat comprising a bedroom, sitting room and a bed settee, a kitchen and a bathroom. The agreements were expressed to be licences to which the Rent Acts did not apply. The County Court judge held that these purported licences were artificial transactions designed to evade the Rent Acts. The House of Lords, upholding his judgment, held that the two agreements signed by the occupants were interdependent and fell to be read together so as to constitute a single agreement. Similarly in this matter Miss Chow submits that the two letters together with their related tenancy agreements fall to be construed in the same way.

21. Whilst there are weighty submissions that may go against Miss Chow's analysis, I am abundantly satisfied that she has done more than enough to demonstrate on the evidence and the authorities that she has referred to that this issue can only be resolved following a trial. It would be quite wrong to drive the Defendants from the judgment seat where there is ample and good support for Miss Chow's analysis. There is therefore in my judgment, a clear triable issue as to whether this area, below stairs, was in fact part and parcel of the overall letting of the various units to the Defendants. That being so, Mr Lin must fail. I propose to give the Defendants unconditional leave to defend. Miss Chow has submitted that her defence is so plain that I should dismiss the summons with consequences as to costs, but I do not consider that to be so.

22. Put rather inelegantly, the Plaintiffs were entitled to "have a go" although they have clearly fallen short of their target.

23. Miss Chow has also come armed with alternative submissions as to a contractual licence and/or estoppel but I do not propose to explore these alternatives where I have so clearly found a triable issue on the main point as to whether a tenancy exists, which I have. In the event of an appeal, should it become necessary, the Court of Appeal is in the same position as I am to determine this, if I am shown to have been in error in ruling in Miss Chow's favour on her principal ground. It would not require the court to remit the matter back to me. It will be able to come to a decision of its own on those alternatives if that were to become necessary.

(Discussion re costs)

24. As to costs, where I have given unconditional leave to defend I propose to say costs in the cause with Certificate for Counsel, to whom I am grateful for their assistance. The matter is of sufficient difficulty to merit the instruction of counsel in this court.