CHAN MEI LING AND ANOTHER v. LAU KWAI FONG

HCA3464/96

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO.A3464 OF 1996

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J U D G M E N T

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1. The Defendant is and was in June 1995 the registered owner of G/F 122 Temple of Street, Kowloon ("the Premises").

2. Miss Chan Mei Ling ("Miss Chan") of the Plaintiffs is the elder sister of the other Plaintiff, Mr Chan Wai Yin ("Mr Chan"). They traded in the name of "The Sweet Garden".

3. On 14th June 1995, the Defendant and Miss Chan, as agent of The Sweet Garden Co. ("陳美玲代理甜品樂園公司") ("the Tenant"), signed a Tenancy Agreement in Chinese ("the Agreement") whereby the Premises were let to the Tenant for a term of three years from 1st July 1995 to 30th June 1998 at the monthly rent of $26,000. Clause 8 of the Agreement restricted the user of the Premises to commercial only and the Tenant was not allowed to do things at the Premises which contravene the laws of the Hong Kong Government ─ "本樓祇准作商業之用...不得在該樓幹一切觸犯本港政府法例之事". I am quoting the Chinese words because there is no certified translation of the Agreement and there is no translation of most of the documents which are in Chinese. Not only does the Agreement contain no express provision that the Premises are suitable for use as a dessert restaurant or that it is lawful to use the Premises as a dessert restaurant, Clause 8 expressly prohibits the Tenant from carrying on any illegal activities at the Premises. Clause 8 restricts the user to commercial only. It does not say that the user was a restaurant specializing in dessert. Clause 8 is in Chinese as is the whole of the Agreement and Clause 8 is in everyday simple Chinese language.

4. The causes of action pleaded in the Amended Statement of Claim include misrepresentation, breach of implied term, breach of warranty and breach of collateral contract.

5. In the course of his opening, Mr Sammy Ho, who appeared as Counsel for the Plaintiffs, abandoned an application to amend para.10 of the Statement of Claim to allege an implied term that "The Plaintiffs shall have the right to use the said Premises to be [traded/]operated as 'The Sweet Garden', a restaurant". Mr Ho also dropped paragraph 6(iv) and (v) of his opening which stated that :

"iv) the Defendant knew that the premises would not be issued with a GRL [i.e. a General Restaurant Licence] when she stated the representations in (i) to Ms. CHAN; and

v) the failure to be issued with a GRL breached the basic condition of the Tenancy Agreement because the premises could not be traded as the Sweet Garden."

6. The representations as pleaded in paragraphs 6 and 7 of the Amended Statement of Claim are that :

"6. On 14th June, 1995 and prior to the conclusion of the Tenancy Agreement, Miss Chan expressly informed the Defendant that she intended to operate a restaurant specialising in desserts (hereinafter referred to as 'the said business') at the said premises and that she would decorate the said premises and thereafter apply to the relevant authorities for a restaurant licence.

7. In order to induce Miss Chan to enter into the Tenancy Agreement, the Defendant represented to Miss Chan that the said premises were very suitable for the said business and that the previous tenant had operated a fast-food shop at the said premises (hereinafter referred to as 'the said representations').

Particulars

The said representations were made orally by the Defendant to Miss Chan during the conversation between Miss Chan and the Defendant on 14th June, 1995."

7. It is noteworthy that the Plaintiffs' pleaded case is that the alleged representations are said to have been made on 14th June 1995, the date when the Agreement was signed. More significantly, the alleged representations are that "the said Premises were very suitable for the said business", i.e. that of "[operating] a restaurant specialising in desserts" and that "the previous Tenant had operated a fast-food shop at the said Premises". There is no allegation that the Defendant represented that there was no illegal alteration of the Premises, or represented that a general restaurant licence should be granted in the normal course of events. Compare Nip Wun Lan v. Chan Oi Ling [1985] 2 HKC 105, CA.

8. The Statement of Claim goes on to plea that :

"9. The following were inter alia express terms of the Tenancy Agreement :-

(a) The said premises shall be suitable for the said business.

.....

10. The following were inter alia the implied terms of the Tenancy Agreement :-

(a) The Plaintiffs shall have quiet enjoyment of the said premises as against the Defendant and all persons claiming under or in trust for the Defendant.

(b) The Defendant shall not derogate from her grant to the Plaintiffs.

11. Further and in the alternative in making the Tenancy Agreement, the Defendant warranted (hereinafter referred to as 'the said warranty') to the Plaintiffs that the said premises were very suitable for the said business.

Particulars

The Plaintiffs repeats the particulars under paragraphs 6 and 7 hereinabove.

12. Further and in the alternative by entering in to the Tenancy Agreement, the Plaintiffs and the Defendant had entered into an implied collateral agreement (hereinafter referred to as 'the said collateral agreement') the consideration for which was the entering into the Tenancy Agreement by the Plaintiffs.

13. The Plaintiffs aver that it was a term of the said collateral agreement that the said representations were true.

.....

18. By the said letter dated 19th September 1995, the Buildings Department :-

(a) objected to the issue of a general restaurant licence to the Plaintiffs on the ground that the following unauthorised building works (hereinafter referred to as 'the said unauthorised building works') posed a risk to public safety :-

(i) removal of the internal staircase from ground floor to cockloft;

(ii) slabbing over the staircase void at cockloft level; and

(iii) metal work supporting air conditioning unit suspending from the soffit of the balcony at the first floor;

(b) averred that the shop front extension outside the said premises was unauthorised building work;

(c) indicated the Buildings Department would consider action under sections 24 and 40 of the Buildings Ordinance in order to secure the removal or rectification of the said unauthorised building works; and

(d) asked the Plaintiffs to clarify the use of the said cockloft.

.....

28. Wrongfully and in breach of the Tenancy Agreement, the said premises are not suitable for the said business.

Particulars

The Plaintiffs repeat paragraphs 17-26 hereinabove.

29. By reason of the aforesaid, the Defendant was in breach of the implied covenant in the Tenancy Agreement that the Plaintiffs shall have quiet enjoyment of the said premises, alternatively in breach of an obligation imposed by law.

Particulars

The Plaintiffs repeat paragraphs 17-26 hereinabove.

30. Accordingly by reason of the above facts and in breach of an implied term in the Tenancy Agreement, alternatively in breach of an obligation imposed by law the Defendant has derogated and will continue to derogate from her grant to the Plaintiffs.

Particulars

The Plaintiffs repeat paragraphs 17-26 hereinabove.

31. In the premises, the said representations were false in fact and in truth.

Particulars

The Plaintiffs repeat paragraphs 17-26 hereinabove.

32. In so far as may be necessary, the Plaintiffs will seek to rely on section 3(1) of the Misrepresentation Ordinance, Cap.284.

33. Wrongfully and in breach of the implied term of the Tenancy Agreement, the said warranty was false in fact and in truth.

Particulars

The Plaintiffs repeat paragraphs 17-26 hereinabove.

34. Wrongfully and in breach of the said collateral agreement, the said representations were false in fact and in truth.

Particulars

The Plaintiffs repeat paragraphs 17-26 hereinabove.

35. As a result of the aforesaid, by a letter dated 1st December 1995 from Messrs. Wai and Co., the Plaintiffs' solicitors, the Plaintiffs rescinded the Tenancy Agreement.

36. On or about 2nd January, 1996, the Plaintiffs delivered to the Defendant vacant possession of the said premises and all the keys to the said premises the Plaintiffs had in their possession."

9. The Plaintiffs called two witnesses : Miss Chan and Mr Chan.

10. Miss Chan said in her evidence that before 14th June 1995, the date when the Agreement was signed, she had never had any contact with the Defendant. And she went on to say that on 14th June 1995, and here I am quoting from her evidence in Chief :

"..... at that time after we have greeted each other, I told them what kind of business I was going to run ... that I was going to run a business making dessert. At that time, she said the previous tenant had operated fast-food shop business. She also said that there should be a lot of customers because there were tourists and there was night market. So what she said was to promote that premises. At that time may be she found that I was quite young she also said something I don't know whether she was trying to induce me or whether she said that genuinely. She said 'you are still young and quite energetic so its the right time for you to run business' ... Something else was said about the shop, saying that the shop had been decorated and the decoration should have met the requirement of making dessert so that time and decoration fee could be saved. She also said that there's already a kitchen in the premises. We agreed the amount of the rent, the way rent was to be paid, the rate etc. and the Agreement came to be signed by me."

When asked by Mr Ho the basis upon which she signed the Agreement, she said :

"At that time our younger brother and I were going to run business for the first time and we found that this shop was suitable for running the business, and we also found the rent suitable. So upon hearing what Mr Shiu [that is to say the Property Agent] and the Defendant said I had a discussion with my younger brother and we thought there was no problem. No problem at that time as it was within our expectation. The Agreement was signed."

When asked by the Court when she had the discussion with her brother, she said :

"I had a discussion with him before the Agreement was signed because at that time we already found the amount of rent reasonable. That's why we made an appointment with the real estate agent who then arranged a meeting for us to meet the owner."

When asked by the Court whether the handwriting on the Agreement, that is to say the handwriting apart from the signatures and the identity card numbers, were written before she met the real estate agent, she said :

"It's written before."

When asked whether she meant they were written before she saw Mr Shiu on 14th June, she said "Yes".

11. When asked by Mr Ho as to her mental state at the time when she signed the Agreement, she said :

"Before I went to see the shop for the first time, the real estate agent told me something about the previous tenant. At that time, I did not quite believe what he said because he is not the owner, but on the day when we signed the Agreement, the Defendant told me the same. She told me the shop would attract customers so I believe them. When I visited the shop, sorry, I mean when I walked past Temple Street before, I used to go to the shops around to have some food. I knew there were tourists and night market and it so happened that I knew there was a vacant shop and the real estate agent said something about the vacant shop so on and so forth. And when I visited the shop for the first time, I inspected the shop and that confirmed what Mr Shiu had told me."

"I knew there were a lot of people in that district and I could afford to run a dessert restaurant in that district. Also on the date when the Agreement was signed, both the Defendant and Mr Shiu had said something. They talked about the environment of the shop saying that the shop would attract customers, etc."

12. Mr Chan who also gave evidence. He was not at the meeting on 14th June. He said in his evidence that after he had been informed by the USD about the refusal to grant a licence and before the meeting in November, he contacted the real estate agent asking him to contact the owner for him to arrange a meeting for her to explain the matter 'if not, I wouldn't give her any rent'.

13. Before Mr Gary Soo, Counsel for the Defendant, opened his case, he asked Mr Ho to correct him if Mr Soo was wrong. Mr Soo said that :

"The case as led and opened by my learned friend did not rely on paragraph 31 (and then Mr Soo went on to refer to) paragraph 33 on warranty and paragraph 34 on collateral agreement."

So he was expressly asking to be corrected if his belief that the case as opened by the Plaintiffs and as led by the Plaintiffs did not rely on warranty and collateral agreement was wrong. I then said that as I understood the opening, and no doubt I would be corrected if my understanding was wrong, that while the Plaintiffs' pleaded case is one of misrepresentation, implied terms, warranty and collateral contract, and as I understood the opening, it only touched upon misrepresentation. The answer given by Mr Ho is short : "Yes".

14. With that answer Mr Soo began his case. If Mr Ho did not intend to abandon the Plaintiffs' causes of action other than misrepresentation, and if he did not intend to mislead Mr Soo and the Court, it is unfortunate that he had not said that the Plaintiffs were still pursuing the other causes of action.

15. Neither Miss Chan nor Mr Chan impressed me as a credible witness. The Plaintiffs have therefore failed to prove on the balance of probability that the Defendant had said anything on 14th June 1995 about the suitability of the premises as pleaded or at all. The Plaintiffs' claim on misrepresentation must therefore fail.

16. Further and in any event, all that the Defendant is alleged by Miss Chan to have said is that "the previous tenant had operated a fastfood shop business" (this is on the Plaintiffs' case perfectly true); that "there should be a lot of customers because there were tourists and there was night market" (emphasis added, this is clearly a statement of opinion); that "the decoration should have met the requirement of making dessert" (that is clearly another statement of opinion) and that "there's already a kitchen in the premises" (Miss Chan agreed that the decoration and the kitchen did save the Tenant time and expense).

17. Any statement which the Defendant is alleged to have said must be understood in the context of what the Defendant is alleged by Miss Chan to have said, i.e. the use by the previous tenant as a fastfood shop (there is no allegation that the Defendant said such user was lawful); that decoration and the kitchen should have met the requirement of making dessert and that the Defendant and Mr Shiu talked about "the environment of the shop". The Defendant is not alleged to have said anything about alteration of the premises or about a restaurant licence. Indeed, Miss Chan has not alleged that she has said anything on 14th June 1995 about a general restaurant licence or any licence. There is no such evidence although there is such an allegation in her pleadings.

18. In my judgment, the claim on misrepresentation is clearly misconceived and must fail.

19. Furthermore, there is no or no direct evidence from Miss Chan or Mr Chan that the Tenant was induced to enter into the Agreement or to incur the expenses claimed by way of damages by any of the alleged representations. Miss Chan's own evidence was that she signed the Agreement on the basis that "we found that this shop was suitable for running the business"; that "I knew there were tourists and night market"; that "when I visited the shop for the first time I inspected the shop and that confirmed what Mr Shiu had told me"; and that "I knew there were a lot of people in that district". On Miss Chan's own evidence, any contention of reliance is, in my judgment, bound to and does fail.

20. I turn now to deal briefly with the other causes of action which Mr Ho saw fit to raise in his final submission, briefly because they are claims which are, in my judgment, obviously unsustainable.

21. On the question of express term, Mr Ho knew that the Agreement did not contain the term alleged in paragraph 9(a) of the Amended Statement of Claim. Miss Chan has not alleged any oral agreement. Moreover, Clause 8 of the Agreement restricts user to commercial only and expressly prohibits the Tenant from carrying on any illegal activities at the premises.

22. The Claim of breach of warranty fails because the Plaintiffs have, in my judgment, failed to prove the alleged or any warranty and have not begun to prove breach of the warranty. I repeat what I have said about construing anything which the Defendant is alleged to have said on "suitability" in the context of what the Defendant is alleged by Miss Chan to have said.

23. The claim in collateral agreement is pleaded on the basis that "the said representations were true" and it must fall with the Plaintiffs' claim on misrepresentation.

24. The claims for breach of the implied covenants of quiet enjoyment and derogation for grant are bound to fail, and in my judgment fail, because there is neither allegation nor evidence of any alleged breach by the Defendant or "persons claiming under or in trust for the Defendant".

25. For the reasons which I have given, I dismiss all the claims of the Plaintiffs.

26. The Defendant counterclaims $52,000 as arrears of rent for November and December 1995. On the Plaintiffs' case, the Plaintiffs only purported to rescind the agreement on 1st December 1995 but did not return the keys until 2nd January 1996. For reasons which I have given, the Plaintiffs were not entitled to rescind, and the Plaintiffs were in breach of the agreement by failing or refusing to pay rents for November and December 1995. I order that judgment be entered in favour of the Defendant against the Plaintiffs in the sum of $52,000. I shall hear Counsel on costs.

[Submissions from Counsel on costs]

27. The Order that I make are :

1) The Plaintiffs' action is dismissed.

2) Judgment be entered in favour of the Defendant on the Defendant's Counterclaim against the Plaintiffs in the sum of $52,000 with interest at judgment rate from 1st December 1995 until judgment.

3) The Plaintiffs do pay the Defendant costs of this action and the Counterclaim.