CLEVER FULL INVESTMENT LTD. v. LEUNG KWAN KEE DECORATION CO AND IRON WORKS

HEADNOTE

LANDLORD & TENANT - tenancy for fixed term of three years, containing proviso for re-entry upon, inter alia, bankruptcy or liquidation of tenant - whether excluded from Part V by section 121 (2)(a) of Landlord and Tenant (Consolidation) Ordinance (Cap. 7).

STARE DECISIS - whether inferior Court bound by unreported decision of Court of Appeal, for which only dissenting judgement is given.

IN THE DISTRICT COURT OF HONG KONG

CIVIL JURISDICTION

ACTION NO. 10147 OF 1990

________________

BETWEEN

__________________

-----------------

JUDGMENT

-----------------

1. By a writ, issued on the 11th September 1990, the Plaintiff seeks to recover possession of the ground floor of 3, Church Lane, Shaukiwan ("the premises") on the basis that the Defendant's tenancy thereof came to an end on the 25th August 1990, i.e., the expiry of a term of three years which began on the 26th August 1987. The Defendant, acting in person, resists the claim on the ground that it was not given 6 months' notice of the landlord's intention to recover possession. It is not disputed that such notice was never given. The Plaintiff contends that it was not obliged to give such notice, because the tenancy is excluded from the application of Part V of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7), and is not governed by any other parts of that Ordinance. The Defendant contends that it was entitled to such notice because of assurances given on behalf of the Plaintiff's predecessor-in-title, Madam CHAN Yock-gon, when the written agreement (Exh. P. 2) dated the 20th August 1987 was signed. Apart from this issue of fact, this case raises a question of the proper construction of section 121 (2)(a) of Cap. 7 and an unusual and difficult question regarding the doctrine of stare decisis.

2. The Defendant is a partnership between two brothers. The senior or dominant partner is Mr LEUNG Sai-yong. He lives at the premises together with his mother, and uses the premises as a place to store materials and equipment for the BUSINESS, to receive orders from customers. He gave evidence before me about the manner in which the premises have been used, the knowledge thereof on the part of Madam CHAN and the Plaintiff, and what was said at or about the time when he signed the tenancy agreement in 1987. Mr LEUNG impressed me as a truthful witness. He did not exaggerate. He was consistent and unskaken in his claim that he had been told in 1987 that 6 months' notice had to be given if either party to the tenancy agreement did not wish to renew or continue the tenancy. He was adamant that he was so informed by Mr NG Chi-cheung when he went to a solicitor's office to sign the tenancy agreement.

3. Mr NG Chi-cheung gave evidence for the Plaintiff. He has been a clerk with the same firm of solicitors for 35 years. He testified that he explained the contents of the tenancy agreement (Exh. P. 2) to Mr LEUNG "paragraph by paragraph," and specifically told Mr LEUNG that, as the premises were business premises, they were not protected by "the tenancy regulations", and he would have to move out at the end of three years. He denied telling Mr LEUNG that 6 months' notice had to be given if either party did not wish to renew the tenancy.

4. I have taken into account Mr NG's long experience and his position in my consideration of the conflicting evidence in this case. Since the summer of 1987 he must have handled numerous transactions of a similar nature for clients of his firm. I doubt whether he was able to faithfully recall the details of his dealings with Mr LEUNG in relation to this transaction in 1987. He admitted that he took no instructions from Mr LEUNG, although he claimed that Mr LEUNG and Madam CHAN were both clients of his firm. In fact, Madam CHAN was not present when Mr LEUNG signed the agreement in the solicitor's office. She signed it later, and elsewhere. Mr NG claimed that Mr LEUNG had to wait for about one hour while the agreement was being prepared. Yet, later on he admitted that the agreement, which is in standard form, was based on a precedent used when his firm had previously acted for Madam CHAN. In my view, it was more probably prepared in advance of Mr LEUNG's attendance, together with Madam CHAN '' s son, and based on an earlier or standard precedent availabe in the office. Even if Mr LEUNG spent about one hour in the solicitor's office, as Mr NG claimed, it is, in my view, unlikely that the agreement was explained "paragraph by paragraph," if most of the time was spent waiting for the agreement to be prepared.

5. In general, I prefer the evidence of Mr LEUNG to that of Mr NG on this issue. I think that it is more probable that only the basic provisions of the agreement were explained to Mr YEUNG; and that this was done very much as a formal or ritual statement preceding a formal execution of the agreement by Mr LEUNG. I find that Mr LEUNG was in the office for a relatively short time, and that he was told that 6 months' notice had to be given if either party did not wish to renew the tenancy. I do not think that much, if anything, was said about the premises being "business" premises, because I am satisfied that it was understood by all parties that the premises would be used for business and residential purposes. I am also satisfied that the subsequent dual user was with the knowledge and consent of Madam CHAN. On the evidence before me, however, the domestic or primary user has not been shown to be sufficient to bring the tenancy within the scope of Part II of Cap 7.

6. The premises were apparently assigned to the Plaintiff by an assignment, dated the 24th March 1990. The assignment (Exh. P. 1) is not expressed to be subject to the tenancy. Nevertheless, the Plaintiff was aware of the tenancy since it was given a copy of the agreement. I am also satisfied that Mr HUI Tsing-man, the Plaintiff's managing director, was aware of the manner in which the premises were being used. But nothing turns upon the actual user. The material question is whether the Plaintiff, as the assignee of the reversion, is bound by the assurance, which I have found was given to Mr LEUNG in 1987, that 6 months' notice of the landlord's intention not to renew the tenancy would be given to the Defendant. There is, in my view, the very real problem of correctly identifying the precise legal status of that assurance. Was it merely legal advice given by Mr NG? Was Mr NG merely expressing some informal understanding between the parties, based upon vague representations by intermediaries? Or, was he agreeing, as agent for Madam CHAN, to an additional or collateral oral term being incorporated into or attached to the written tenancy agreement? Another question is, or may be, whether the Plaintiff became aware of this assurance before or after the assignment.

7. With regard to the latter question, the evidence is confused and tenuous, partly because of the uncertainty regarding the date when the Plaintiff actually became the landlord of the premises. Mr HUI testified that he visited the premises "on the 25th March, before the execution of the assignment." The Plaintiff's solicitors gave the Defendant notice of the termination of his tenancy, on behalf of Madam CHAN, by a letter dated the 14th June 1990, although the formal assignment was dated the 24th March 1990! Their attempt to rectify the alleged error five days later is unconvincing. It does not reveal when the Plaintiff became the owner of the premises. No explanation has been given for this strange state of affairs. But, whether the assignment was completed in March or June 1990, I do not think that there is sufficient to infer that the Plaintiff was aware of that assurance before the commencement of the present proceedings.

8. The assurance in question does not, in my view, contradict the terms of the written agreement (Exh. P. 2). It is quite capable of taking effect as a collateral agreement or condition precedent, without offending the parol evidence rule. However, the Defendant's conduct, upon receipt of the letters from the Plaintiff's solicitors in June 1990, is difficult to reconcile with a belief in a contractual entitlement to 6 months' notice of termination. Mr LEUNG did not immediately complain that the notice of some 2 months (Exh. P. 3) was shorter than he was entitled to. That omission may be explained by his apparent decision to take the matter up with Madam CHAN, as the original party to the arrangement. But, it seems that he did not come back to the Plaintiff's solicitors when he could not contact Madam CHAN; but simply waited until these proceedings were begun. That suggests, in my view, that he regarded the assurance as no more than a personal undertaking by Madam CHAN to give him fair warning if she decided not to renew the tenancy. At the highest, it might afford the Defendant some ground for resisting an immediate order for possession by relying on some form of equitable estoppel. But, I consider that the timescale of any such equitable defence would have come to an end by the time of the trial. The evidence is somewhat scanty. If I have failed in my duty to assist an unrepresented litigant to bring out all material facts, I can be invited to exercise my powers of review. But,in all the circumstances, I can find no sufficient evidence to support a finding that the Defendant was entitled to 6 months' notice by reason of some agreement or conduct of the various parties. The only remaining question is whether the Defendant is so entitled, as a matter of law, because the tenancy is governed by Part V of Cap. 7. This raises the question of the proper construction of section 121 (2)(a) of the Ordinance.

9. In support of his contention that the tenancy in this case was excluded from Part V of Cap 7, Mr HO relied on Winning Enterprises Ltd. v. Peking Restaurant Ltd. [1971] HKLR 240, a decision of Briggs, J. (as he then was), on an earlier statutory provision in similar terms to those of section 121 (2)(a) of Cap. 7. That case was considered by Fuad J. in Hotung v. Jimmy's Kitchen Ltd. [1982] HKLR 196, which also revealed the existence of an unreported decision of the Court of Appeal supposedly dealing with the same question of law. Cf. Yue Wan Estates Ltd. v. Ding Kwei-tsoh (Civ. App. No. 36 of 1976; 23rd December 1976). In all of these cases, the lease contained a proviso for re-entry (clause 4(a)) in virtually the same terms as proviso 1 in the Third Schedule of the tenancy agreement in the present case, entitling the landlord to re-enter and determine the lease not only upon breach of covenant by the tenant but also upon the happening of certain events, which would not be breaches, such as the tenant's bankruptcy, liquidation or other events casting doubt on the tenant's solvency.

10. In Hotung v. Jimmy's Kitchen Ltd., supra, Fuad J. considered that he was bound by the unreported decison of the Court of Appeal, notwithstanding the absence of any reasoned judgment on the part of the majority. Although he felt some discomfort in coring to that conclusion, it would seem that he had no difficulty in ascertaining the ratio decidendi of that decision from the mere dismissal of the appeal and the existence of a dissenting judgment by Huggins J.A. The latter, which is reproduced as an addendum to this judgment, is the only record now available of the decision of the Court of Appeal. The file has been destroyed. Part of the judgment of the first instance judge (Trainor J.) is set out in the judgment of Fuad J. (at p. 199). It may be the case that the majority (Briggs C.J. and Pickering J.A.) simply agreed with Trainor J. that the proviso for re-entry was based on a breach of the tenant's implied undertaking not to become bankrupt, etc. Equally, it may be the case that only Pickering J.A. adopted that approach, and that Briggs C.J. merely followed his earlier decision in Winning Enterprises Ltd. v. Peking Restaurant Ltd. supra, which, in my respectful view, does not deal with the question whether the provision for earlier determination must be confined to breaches. This very unusual situation should, in my respectful view, be approached in accordance with the view of Lord Dunedin in the Mostyn [1928] AC 57 (at 73) that:

" ..... if [the ratio decidendi] is not clear, then I do not think that it is part of the tribunal's duty to spell out with great difficulty a ratio decidendi in order to be bound by it."

11. These words were uttered with regard to the attempts of a lower court to ascertain the ratio decidendi of an earlier authority contained in several reasoned speeches or judgments of the House of Lords. In my view, they must carry almost compelling effect when a lower court or tribunal is faced with a decision of a higher court for which no reasons are given!

12. I do not think that I am bound by the decision of the Court of Appeal in Yue Wan Estates Ltd. v. Ding Kwai-tsoh, supra because of the great difficulty or impossibility of ascertainng the ratio decidendi. But, convention requires me to follow the rationes decidendi of judges of the High Court, at least on matters where they exercise a coordinate original jurisdiction. Unfortunately, in the present context, the authorities appear to be in conflict. The view of Trainor J., to the effect that the proviso for re-entry arises out of an implied breach by the tenant, goes further than the decision of Briggs J. in Winning Enterprises Ltd v. Peking Restaurant Ltd., supra. In Hotung v. Jimmy's Kitchen Ltd., supra the learned judge was able to avoid these problems by reason of the fact that the lease in question contained a different provision (clause 4(g)) not found in the earlier cases. By falling back on his primary duty to give effect to the intention of the legislature, as expressed in the words of the statute, he was able to conclude that the tenancy was not excluded from Part V of Cap. 7. Certain passages in his judgment (at 2001 to 201B and 201G-H) appear to me to suggest that he would not have followed the previous decisions, if he had not felt himself bound by the decision of the Court of Appeal. In my respectful view, the dissenting judgment of Huggins J.A. and the reasoning of Fuad J. (especially at 201) more accurately reflect the intention of the legislature. But in the unusual circumstances which face me, I do not think that I can properly elect to follow them (severally or jointly) in preference to the earlier decisions.

13. In 1984 the Ordinance was amended. Three lines were added to section 121 (2)(a), which have the effect of reversing the decision of Fuad J. in Hotung v. Jimmy's Kitchen Ltd. not because it was wrong, but because it was felt that the remote possibility of forfeiture following destruction or damage to the premises should not give tenants of fixed terms of three or more years the very limited protection of Part V. Although I consider that, giving effect to the ordinary meaning of the words used by the legislature, there is a clearer indication that destruction or damage is the only "non-breach" situation which will exclude the application of Part V of Cap. 7, I do not think that the amendment is sufficiently radical to enable me to look at the words of the present enactment afresh, and give them their ordinary meaning, and disregard the interpretations placed thereon by judicial decisions, which are binding on me.

14. In the circumstances, and somewhat reluctantly, I find that the Defendant was not entitled to six months' notice of termination.