TSANG TIN SAU AND ANOTHER v. TSOI LAWRENCE CHIK SANG

HCA 1245/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1245 OF 2010

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J U D G M E N T

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1.  This is the Defendant’s appeal against the decisions of the Master given on 18 January 2011 in respect of two summonses.

2.  In the first summons the Plaintiffs sought and were granted summary judgment for possession of the shop premises which were the subject of a written tenancy agreement entered into between the Plaintiffs as landlord and the Defendant as tenant.  The Master further ordered damages against the Defendant for breach of certain provisions of the agreement, to be assessed.

3.  In the second summons, upon granting leave to the Plaintiffs to serve an affirmation out of time, the Master awarded costs in the Defendant’s favour in the sum of $800.  The Defendant is not satisfied with the amount of the award.

Background

4.  By the tenancy agreement, the Plaintiffs let to the Defendant the shop premises known as Shop E on the Ground Floor and Cockloft, Nos. 76 - 86, Lung Sum Avenue, Shek Wu Hui, New Territories for a period of 3 years commencing on 1 July 2009 and ending on 30 June 2012, at a monthly rent of $53,000.

5.  Under the tenancy agreement, the Defendant had agreed, inter alia,

“5. …

(c) To use the said premises for such purpose only as stated in the Sixth Part of the First Schedule hereto.

…

(v) Not to affix or display or permit or suffer to be affixed or displayed within or outside the said premises any signboard, sign decoration or other device whether illuminated or not.

(w)  Not to transfer assignsub-let license share or otherwise part with possession of the said premises or any part thereof either by way of sub-letting, lending, sharing or other means whereby any person(s) or persons not a party to this Agreement obtains the use or possession of the said premises or any part thereof for all or any part of the term hereby granted …”

6.  For the purpose of clause 5(c), the Sixth Part of the First Schedule stipulated that the shop premises were to the used “for the purpose of retail of food which cannot be changed except with the prior written consent of the Landlord”.

7.  Clause 7(a) of the agreement provided:

“If the rent or any part thereof shall be unpaid for fifteen days after the same becoming payable (whether formerly demanded or not) or if the Tenant shall fail or neglect to perform or observe any of the terms and conditions herein contained and on his part to be performed or observed … it shall be lawful for the Landlord at any time thereafter (with or without notice to the Tenant) to re-enter upon the said premises or any part thereof in the name of the whole and thereupon this Agreement shall absolutely determine …”

8.  The Plaintiffs’ case is that the shop premises were let to the Defendant who was to carry on the business of the well-known Hang Heung Cake Shop(恆香老餅家)at those premises.  However, in about February 2010, the Plaintiffs became aware of the signs and signboards being hung outside the shop premises, bearing the name “Hong Kong Wine Club(香港葡萄酒會)”.  The Plaintiffs became concerned that the said Hong Kong Wine Club might have been occupying the cockloft of the shop without their consent.

9.  The Plaintiffs then made inquiries with the Defendant, whereupon they were told by the Defendant that he (the Defendant) would be able to provide official documents to prove that he was the sole owner of the company operating as Kong Kong Wine Club.

10.  However, no documentary proof was forthcoming.  The Plaintiffs then sought legal advice, and it was discovered that the company trading as “Hong Kong Wine Club” was one China Master Holdings Limited (“China Master”).  The companies’ record showed that the Defendant was neither a shareholder nor a director of China Master.

11.  Accordingly, a letter dated 14 May 2010 was sent by the Plaintiffs’ solicitors to the Defendant, stating that the Defendant had been in breach of the tenancy agreement by allowing the company, Hong Kong Wine Club, to use and occupy the cockloft of the shop premises, and by displaying signboards outside the shop premises and the said cockloft.  The Plaintiffs demanded the Defendant to “stop the said unlawful acts” within 5 days or else legal proceedings would be brought against him.  This letter is relied upon by the Plaintiffs as the notice required to be served under section 58 of the Conveyancing and Property Ordinance (“the May 14Letter”).

12.  The Defendant responded through his solicitors on 6 June 2010, contending that the business at the cockloft in the name of Hong Kong Wine Club was run by the Defendant himself.  There was therefore no subletting or parting with possession of any part of the shop premises.  The Defendant further contended that the signboard (singular) of Hong Kong Wine Club was displayed for his ordinary business and was not inconsistent with the use of the shop premises for the purpose of retail of food.  He further stated that by receiving rent without any objection, the Plaintiffs had waived any rights they might have in connection with the display of the signboard in question.

13.  The Plaintiffs eventually issued the Writ in the present Action, asserting forfeiture of the tenancy.  As already mentioned, the Plaintiffs subsequently applied for summary judgment, seeking possession of the shop premises with damages.

14.  In the Defendant’s affirmation in opposing summary judgment, he accepted that since about 2 to 3 months after commencement of the tenancy, the cockloft was used for the business of the sale of red wine under the name of Hong Kong Wine Club.  There is no dispute that the company trading as Hong Kong Wine Club was China Master, of which he was neither a shareholder nor a director.

15.  It is also accepted that a signboard (singular) bearing the name of Hong Kong Wine Club was displayed outside the cockloft.

16.  The Defendant, however, raised a number of matters in resisting summary judgment, some of which were repeated in the present appeal.

17.  First, at the time of signing the tenancy agreement, the Defendant had specifically asked the first-named Plaintiff whether he could use the cockloft or other parts of the shop for other kind of business (other than selling products of the Hang Heung Cake Shop).  He was told that he could, so long as such other kind of business was owned by him (the Defendant).

18.  Secondly, although on record the shareholders and directors of China Master were one Mr. Kwok and one Mrs. Li (or Madam Ling), he had in fact entered into a private agreement with them that he would share 60% of the profits and losses of the business while Mr. Kwok and Mrs. Li would each share 20%.  He had not received any rent for the occupation of the cockloft.  The sale of the wine was mostly handled by his employees.  In light of such arrangement, he had not breached any provision in the tenancy agreement prohibiting subletting, parting or sharing of possession of the cockloft with a third party.

19.  Thirdly, he contended that the May 14 Letter failed to comply with the requirements set out in section 58 of the CPO and therefore any right of forfeiture that the Plaintiffs might have was not enforceable against him.

20.  Lastly, the Plaintiffs had waived their right to forfeit the tenancy by having received rent without raising objection to the alleged breaches of the tenancy agreement.  I should note here that Mr. Sherry (the Defendant’s counsel) has indicated that this last point is not pursued in this appeal.

Parting with / Sharing Possession

21.  I propose to deal with the Defendant’s first two points together.

22.  First, as it is clear from the companies’ record, China Master has a separate corporate existence.  As accepted by the Defendant, he was not a shareholder or a director of that company.  Mr. Sherry very fairly accepted that the Defendant did not have any interest in China Master.  I do not think it can be disputed that China Master was a distinct and separate entity carrying on its business.

23.  It is apparent from the photographs that the cockloft itself has a separate entrance.  The door to the cockloft-entrance bears the name Hong Kong Wine Club.  There is no evidence that any part of the cockloft was retained as a shop for the business of the Hang Heung Cake Shop.  It seems clear on the evidence that the wine-selling business and the business of the cake shop were two separate businesses, occupying different parts of the shop premises.  Indeed, at the hearing, Mr. Sherry confirmed that the whole of the cockloft was used for the wine-selling business, which was conducted under the name of Hong Kong Wine Club.

24.  At the hearing, on behalf of the Defendant Mr. Sherry asserted that the wine-selling business at the cockloft was owned beneficially by the Defendant alone.  While that business was carried on in the name of the Hong Kong Wine Club, it was the Defendant and his employees who actually handled its business.  It was further asserted that any sums payable to Mr. Kwok or Mrs. Li under the private agreement were in effect the consideration for allowing the Defendant to use the name of the Hong Kong Wine Club.  In the course of his submissions, Mr. Sherry argued that the agreement could be compared to the franchising arrangements we commonly see in some other commercial operations.  On the basis he now advanced, Mr. Sherry contended that the Defendant had always had complete control of the cockloft and there was no parting with possession or sharing possession with another party, citing passages at pp. 210 and 211 of the judgment in Akici v. LR Butlin Ltd. [2006] 1 WLR 201 in support.

25.  The factual scenario now put forward by Mr. Sherry is clearly different from that set out in the Defendant’s affirmation in material respects.  It would be noted that the Defendant’s evidence did not refer to the wine-selling business at the cockloft as beneficially owned solely by the Defendant.  Nor was there any reference to the sums payable to the shareholders of China Master were in the nature of payments in exchange for being allowed to use the name Hong Kong Wine Club for the Defendant’s wine-selling business.  What the Defendant said in paragraph 4 of his affirmation was merely that the private agreement between himself and Mr. Kwok and Mrs. Li related to the sharing of profits and losses of the business.  A fair reading of his affirmation would indicate that the business conducted at the cockloft was in fact owned and operated by China Master under the name of Hong Kong Wine Club, which in turn was subject to a profit/loss-sharing agreement between the Defendant, Mr. Kwok and Mrs. Li.

26.  As it is incumbent upon the Defendant to set out all the material facts relied on in opposition to an application for summary judgment, I am unable to accept Mr. Sherry’s contention that, at a later stage of the proceedings, the Defendant will be able to adduce further evidence by way of his witness statement to substantiate the case he now advances on his behalf.

27.  On the materials presently available, the wine-selling business at the cockloft was carried on by the Hong Kong Wine Club which was the trade name of China Master.  There is no credible evidence to support the assertion that the Defendant was the sole owner of the business being conducted at the cockloft.  As China Master was a separate entity in which the Defendant did not have any interest (other than a profit/loss-sharing arrangement with its shareholders), I am of the view that it was the Hong Kong Wine Club / China Master which had had the use and occupation of the cockloft, and such use and occupation did amount to possession of the cockloft in the circumstances of the present case.

28.  The inevitable conclusion is that the Defendant was in breach of clause 5(w) by having parted with possession of the cockloft or, at least, by sharing that part of the shop premises with a person not being a party to the tenancy agreement, namely, China Master or Hong Kong Wine Club, whereby the latter had obtained the use and possession of such part of the premises.

29.  In this connection, it will not assist the Defendant by seeking to introduce the term purportedly to allow him to carry on other kind of business owned by him at the shop premises: see paragraph 3 of the Defendant’s affirmation.  For the reasons already given, I do not consider it right to regard the business of China Master or the Hong Kong Wine Club as being owned by the Defendant.

30.  In any event, I have grave doubts whether the introduction of such a term is permissible in law.  It is expressly stated in clause 5(c) and the Sixth Part of the First Schedule that the shop premises could only be used “for the purpose of retail of food”.  At the time of the tenancy agreement, the “food” envisaged must be food to be sold at or by the cake shop.  I am not convinced that the clause should be interpreted so broadly as to encompass the sale of red wine.  That being the case, I see no basis for introducing the term as an exception to the rule against parole evidence.

Signboard

31.  It follows from the above that the display of the Hong Kong Wine Club’s signboards was a clear breach of clause 5(v) of the tenancy agreement.

Section 58 of the CPO

32.  The Defendant contends that the May 14 Letter failed to comply with the requirement of section 58 by omitting to specify the compensation required by the Plaintiffs in respect of the breaches complained of.

33.  According to the decision in Akici v. LR Butlin Ltd. (supra), a breach in the nature of wrongful parting of possession or sharing possession with a third party, is capable of remedy.

34.  In my view, so is a breach arising from the wrongful display of signboard(s).

35.  The May 14 Letter did require the Defendant “to stop the said unlawful acts”.  I think it would be reasonably understood that the Defendant was thereby required to remedy the breaches mentioned in the letter.

36.  I am told by counsel that there is no direct authority as to what compensation is required to be specified in such a notice.  Mr. Chan, on behalf of the Plaintiffs, contended that the May 14 Letter was sufficient to meet the statutory requirement as it expressly demanded for the delivery of vacant possession and damages.  It was not possible to specify the exact amount of compensation as the breaches complained of were still continuing when the notice was issued.

37.  It cannot be gainsaid that a forfeiture notice served under section 58 of the CPO has to be read with common sense.  In the present case, the reference to damages in the context of the letter is, in my view, sufficient to bring home to the recipient that the Plaintiffs would require monetary compensation arising from the breaches complained of.  I also accept that as the breaches were continuing, the omission of an exact amount does not render the May 14 Letter defective as a statutory notice under section 58.

Costs of the Second Summons

38.  The second summons relates only to the late serving of an affirmation.  It was a very simple and straightforward application.  There is no basis to disturb the Master’s assessment of the costs involved for that summons.

Conclusion

39.  For the foregoing reasons, I would dismiss the Defendant’s appeal in relation to both decisions of the Master.  The Plaintiffs should have the costs of the appeal.