EASY FAIR INDUSTRIES LTD v. YAU CHUNG YUET t/a CALIFORNIA SUNSHINE FRUITS AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. On 17 December 1996, Registrar Betts granted an Order 14 judgment against the first defendant in the sum of $570,000, together with interest, and in the sums of $95,000 per month being "further rent and/or mesne profits", with other relief. The first defendant now appeals against this decision.

2. The relevant parts of the plaintiff's statement of claim allege-

3. In answer, the relevant allegations in the defence read -

4. The plaintiff's evidence is from Miss Butt Ching Han, the plaintiff's accountant. She says that in or about late July/August 1995, the plaintiff.

"negotiated with the first defendant with a view to enter into a tenancy agreement to be prepared by solicitors for the grant of tenancy of the premises. All along, the plaintiff has no objection to the first defendant to use a limited company to rent the premises provided all the necessary documentation were duly and properly executed by the parties. The first defendant first advised the plaintiff by [the plaintiff's solicitors] that he would use the second defendant to take the tenancy of the premises. However, on or about 14 September 1995, the first defendant by its solicitors ... proposed and advised the plaintiff that he would use a limited company named 'Ridex International Limited' to take up the tenancy. Unless and until the tenancy agreement has been executed between the parties, the plaintiff regards the first defendant as the tenant of the said premises holding over after the expiration of the licence ..."

5. On 28 July 1995, the plaintiff's solicitors wrote to the mortgagee of the premises seeking its agreement to a lease to the second defendant.

6. On 18 August 1995, the solicitors for the defendants wrote to the plaintiff's solicitors saying they were acting for "the prospective tenant".

7. On 11 September 1995, the defendants' solicitors wrote to the plaintiff's solicitors saying that "our client would like the tenancy to be taken by a newly formed company and we shall inform you the name of the company in due course." The name of the tenant in the draft lease was that of the second defendant, but this was deleted by the defendants' solicitors. By 14 September 1995, this new company's name had emerged as Ridex International Limited. A tenancy agreement in this name was sent to the defendants' solicitors, but it was never returned.

8. The second defendant is a company with a paid-up capital of $10,000. It has two directors and two shareholders. The first defendant holds 8,700 of the 10,000 shares. The other director and shareholder is a Mr Kwan. Ridex International Limited was incorporated on 18 September 1995.

9. The first defendant says that although the licence agreement was signed by him personally it "was intended for the use of" the second defendant. He says that "In the middle of August 1995, I had a negotiation with one Mr Leung of the plaintiff company. I told him the licence agreement would come to an end by the end of September 1995 and on behalf of Long Mark. I would like to discuss the tenancy matter with him. I told him that the premises were being used by Long Mark and the tenancy agreement would be in the name of Long Mark .... After negotiation, it was agreed that the licence period would be cut short and there would be a grant of tenancy of the suit premises to Long Mark... After my meeting with Mr Leung ... I was trying to agree matters concerning business with Mr Kwan. At one time, it was suggested that a new company be used to take up the tenancy.... Financial matters concerning Long Mark had to be agreed between Mr Kwan and myself before the tenancy agreement could be signed. It was for this reason that the tenancy agreement has not yet been signed."

10. The plaintiff's cause of action is contained in paragraph 2 of its statement of claim. It is upon this agreement that the plaintiff sues. Indeed, the parties are at one in saying that there was an agreement, and that this was the only one. They also agree that the first defendant entered into this agreement. The difference between them is that the plaintiff says that this agreement was entered into by the first defendant personally, whereas the first defendant says that he acted merely as an agent for the second defendant. It cannot be true, of course, that the first defendant acted merely as an agent for the second defendant in entering into the agreement. Both parties say that it was agreed that the so-called licence agreement, which looks like a lease to me, was terminated before its full term had run. That licence was vested in the first defendant personally, and only he, acting on his own behalf, could agree to its termination. It follows, therefore, that he was a party to this agreement personally. We also know that the first defendant could not have been acting on behalf of the second defendant because the first defendant was having some unspecified difficulties with Mr Kwan with the consequence that the second defendant could not enter into the lease agreement. In these circumstances, which were, of course, well known to the first defendant, it is not credible that he would purport to bind the second defendant. It is much more credible that he bound himself, with an understanding that, if he were able to obtain the approval of the second defendant, it would take over the lease. It is also the evidence that the first defendant nominated another company to take the lease. On 11 September 1995, his solicitors wrote to the plaintiff's solicitors saying that "our client would like the tenancy to be taken by a newly formed company and we shall inform you the name of the company in due course." The name of the tenant in the draft lease was that of the second defendant, but this was deleted by his solicitors. In the context and the circumstances, the reference to "our client" could be a reference only to the first defendant. Ridex International Limited was incorporated only on 18 September 1995, but even before this the first defendant must have nominated this company as the lessee. What was happening here, clearly, was that the first defendant was behaving consistently with an agreement entered into by him personally; he was dealing with "his" agreement, not that of the second defendant. Having failed, presumably, to get the second defendant to take over the lease, he found another company to do so. This contemporaneous behaviour by the first defendant is consistent with the plaintiff's case, but inconsistent with his own.

11. The first defendant admittedly entered into the agreement alleged. It is for him to put up a credible defence that would free him from liability under the agreement into which he entered. On his own case, he must have been a party to that agreement in a personal capacity. Under no other hat could he agree to the licence being "cut short". He says that, in other respects, he was acting merely as an agent for the second defendant, but his contemporaneous conduct gives the lie to this; he behaved as if it were for him to nominate a party who would take over the rights and duties under a tenancy. The plaintiff's attitude to this is quite clear; they were happy to go along with a lease with whatever company the first defendant selected, but this did not mean that the agreement was such that if the first defendant was unable to persuade anyone to come forward to take over, the plaintiff was to be left without any claim under the agreement. The first defendant having failed to find someone who would take over the liabilities, he must accept them himself.

12. In the light of the evidence, in particular, the first defendant's own evidence that the second defendant could not enter into the lease because of the second defendant's internal difficulties, and the evidence that he nominated Ridex to be the lessee, the first defendant's case that the second defendant became the tenant of the premises is totally incredible. There was an enforceable agreement entered into here; no one argues to the contrary. This agreement was entered into by the first defendant. He has failed to put up a credible case that anyone other than he is liable on that agreement.

13. In the result, I find that the first defendant has failed to establish a case fit for trial. I dismiss the appeal with costs.