SINGH JUGRAJ v. WAVE STEP LTD

DCCJ 2637/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2637 OF 2010

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J U D G M E N T

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Background

1.  This case is about the disputes between the tenant and the landlord of the property known as G/F, DD 215, Lot No. 787 S.A., Po Tung Road, Sai Kung, New Territories, Hong Kong (“the Property”), which consists of two parts, the ground floor and the cockloft, and they are accessed by different entrances.

2.  The defendant purchased and became the registered owner of the Property on 10 January 2008.  When the Property was purchased by the defendant, both the ground floor and the cockloft were vacant.  The defendant gave instructions to several property agents, including Mr Lau Wing Kin Ken (“Mr Lau”) of Legend Property Agency Limited, to lease out the ground floor and the cockloft of the Property. In or about July 2009, the cockloft of the Property was leased out for a term of two years.

3.  In December 2009, the plaintiff and his wife, Ms Kaur Rajpreet (“Ms Rajpreet”), approached Mr Lau for leasing a shop in Sai Kung area.  Mr Lau introduced the ground floor of the Property to the plaintiff.  After some negotiations through Mr Lau, the plaintiff and the defendant entered into a written tenancy agreement dated 2 December 2009 (“the Tenancy Agreement”), whereby the defendant leased the ground floor of the Property to the plaintiff for a term of one year from 20 January 2010 to 19 January 2011 at the rental of $12,000.00 per month and with the option to extend the lease for one more year.

4.  It is the plaintiff’s case that, apart from the Tenancy Agreement, the agreement to lease the ground floor of the Property was made partly orally at the Property on 1 December 2009 between the plaintiff and Mr Lau acting on behalf of the defendant.  However, in the Statement of Claim, the plaintiff did not plead any term of the leasing agreement that was agreed by the parties orally at the property on 1 December 2009.  The plaintiff merely states in paragraph 6 of the Statement of Claim that it was made known by the plaintiff to Mr Lau acting on behalf of the defendant that the sole purpose of renting the ground floor of the Property was to operate an Italian restaurant.  There is no indication that this statement was the term agreed by the parties orally at the Property on 1 December 2009.  There is also no evidence on what were agreed by the parties orally at the Property on 1 December 2009.  Thus, it is not clear what oral agreement the plaintiff is relying on in this action.

5.  On the other hand, the plaintiff contends that, in order to induce the plaintiff to make and complete the agreement for renting the ground floor of the Property and pay the security deposit of $24,000.00, Mr Lau acting on behalf of the defendant represented to the plaintiff the following: -

(1)   The Property had previously been used as a café (the 1^st Representation”); and

(2)   A food licence will be able to be obtained from the Food and Environmental Hygiene Department (“FEHD”) in relation to the Property (“the 2nd Representation”).

6.  The plaintiff alleges that acting on the faith and truth of the 1^st and 2^nd Representations and induced thereby, the plaintiff did the following: -

(1)   paid to the defendant the monthly rent of $12,000.00 on 20 December 2009 to meet the rental charges for the period from 20 January 2010 to 19 February 2010; and

(2)   renovated the ground floor of the Property and purchased equipment for the use of the restaurant, the total cost of which was $322,043.40.

7.  The plaintiff contends that the 1^st and 2^nd Representations were untrue as his application for a provisional/full general restaurant licence was refused by FEHD on 7 April 2010 due to the Property not complying with the requirements of the Lands Department, and the non-compliance had been in existence prior to the leasing agreement between the parties.  It is not clear from the Statement of Claim as to what caused the alleged non-compliance, but from the evidence, it seems that the plaintiff is alleging that the cockloft of the Property is an illegal structure which caused the non-compliance.

8.  The plaintiff also contends that the defendant made the 1^st and 2^nd Representations fraudulently well knowing that they were false and untrue or recklessly not caring whether they were true or false.  Further or in the alternative, the plaintiff relies on section 3 of the Misrepresentation Ordinance to claim for damages.

9.  The plaintiff has already returned vacant possession of the ground floor of the Property to the defendant on 14 June 2010, but claims that he has suffered the following loss and damage: -

(1) Security deposit & rent	$24,000.00
(2) Materials costs of renovation & equipment	$322,043.40
(3) Loss of profits	$200,000.00
(4) Labour costs	$200,000.00
Total:	$746,043.40

10.  From what are pleaded in the Statement of Claim, it is clear that the plaintiff is relying on misrepresentation, whether fraudulent, reckless or innocent, to make his claim for damages, interests and costs.  Fraudulent misrepresentation is a claim based on the common law action of deceit.  Negligent misrepresentation is a common law action for negligent misstatement under the doctrine of Hedley Byrne (see Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465).  Innocent misrepresentation is a claim based on section 3 of the Misrepresentation Ordinance.

11.  However, in his submissions, Mr McGowan for the plaintiff submits that the plaintiff relies on the defendant’s following representations: -

“a) “Warranties” on the key issues of

i) whether a Restaurant licence could be obtained and previous “café use” of the Property.

ii) That the Property would be structurally fit for this purpose.”

12.  Mr McGowan argues that the representations made by Mr Lau had become contractual terms of the leasing agreement, because the plaintiff would not have entered into the tenancy if they had not been made.  In support of his submission, Mr McGowan refers to the case of Bannerman v White (1861) 10 CB NS 844, where Erle CJ said this: -

“This undertaking was a preliminary stipulation; and, if it had not been given, the defendants would not have gone on with the treaty which resulted in the sale. In this sense it was the condition upon which the defendants contracted; and it would be contrary to the intention expressed by this stipulation that the contract should remain valid if sulphur had been used.

The intention of the parties governs in the making and in the construction of all contracts.”

12. Mr McGowan also relies on the cases of Ko Ching Chung v Fulltin Investment Ltd, CACV 337/2006 and Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623, to submit that such representations in the circumstances of the case can indeed lead to warranties by which the defendant is bound.

13.  Thus, it seems that the plaintiff is now saying that the representations made by Mr Lau had become contractual terms of the leasing agreement and relies on breach of warranties as his cause of action.  He is also relying on an additional representation made by the defendant that the Property would be structurally fit for the purpose of obtaining a restaurant licence.

14.  The plaintiff has not pleaded in the Statement of Claim that the alleged representations were contractual terms of the leasing agreement, and such a cause of action based on breach of warranties is also not pleaded.  In fact, breach of contractual terms or warranties is completely different from the causes of action mentioned above for fraudulent, negligent and innocent misrepresentation.  The alleged additional representation that the Property would be structurally fit for the purpose of obtaining a restaurant licence is also not pleaded.   As the plaintiff is bound by his pleadings and it would not be fair to ask the defendant to deal with these matters when they are not pleaded, I am not prepared to deal with the plaintiff’s claim on the basis that the alleged representations were contractual terms or his claim is based on breach of warranties.  I am also not prepared to deal with this alleged additional representation of structural fitness.

15.  The defendant disputes the plaintiff’s claim and raises the following defence: -

(1)   The Tenancy Agreement was the entire agreement and there was no oral agreement reached between the parties.

(2)   The plaintiff did not make known to Mr Lau that the plaintiff’s sole purpose of renting the ground floor of the Property was to operate an Italian restaurant, and even if the plaintiff did so, Mr Lau was not acting on behalf of the defendant.

(3)   Mr Lau did not make the 1^st and 2^nd Representations to the plaintiff, and even if he did, he was not acting on behalf of the defendant.

(4)   The plaintiff did not and was not entitled to rely on the alleged 1^st and 2^nd Representations.

(5)   The alleged 1^st and 2^nd Representations were not untrue.

(6)   The defendant has no duty and/or obligation under the Tenancy Agreement to remedy the non-compliance of the requirements of the Lands Department.

16.  The defendant also counterclaims against the plaintiff for the following reliefs: -

(1)   The sum of $24,000.00 being the rents of the ground floor of the Property for the months of April and May 2010 which the plaintiff has failed to pay;

(2)   Damages for the plaintiff’s failure to restore the ground floor of the Property to its bare-shell condition upon delivery of possession on 14 June 2010 as required by the Tenancy Agreement;

(3)   Damages for repairing the water pipe of the ground floor of the Property which was damaged by the plaintiff;

(4)   Damages for the plaintiff’s repudiatory breach of the Tenancy Agreement in returning possession of the ground floor of the Property on 14 June 2010 whereby the defendant suffered loss of rental income from 14 June 2010 to 19 January 2011;

(5)   An order that the security deposit paid by the plaintiff in the sum of $24,000.00 be used for deducting the sums ordered in the above reliefs;

(6)   Interests; and

(7)   Costs.

Issues

17.  Both parties agree that the following are the main issues in this case: -

(1)   Did Mr Lau make the 1^st and 2^nd Representations?

(2)   If so, were the 1^st and 2^nd Representations untrue?

(3)   Were the 1^st and 2^nd Representations made with the defendant’s authority?

(4)   Did the plaintiff rely on the 1^st and 2^nd Representations to enter into the Tenancy Agreement?

(5)   Whether the defendant or Mr Lau has the duty to disclose there is an illegal structure at the Property prior to the signing of the Tenancy Agreement?

(6)   Who is responsible for the refusal of the restaurant licence due to the existence of the illegal structure?

(7)   If the defendant is liable for misrepresentation, what are the damages?

(8)   Is the plaintiff liable for the counterclaim?

(9)   What are the damages of the counterclaim?

18.  I shall deal with each of the issues in turn below.

Were the alleged representations made?

19.  The plaintiff and Ms Rajpreet both gave evidence to the effect that when they were with Mr Lau at the Property, Ms Rajpreet communicated with Mr Lau mostly in Punti which the plaintiff did not understand.  However, the plaintiff heard them having a conversation in English which the plaintiff understood.  The conversation was about Ms Rajpreet telling Mr Lau that the plaintiff intended to rent the ground floor of the Property to operate a restaurant and that a food licence was needed.  Ms Rajpreet asked Mr Lau if a food licence was able to be obtained for the Property.  Mr Lau replied that they did not need to worry about obtaining a food licence and that it would not be a problem since the Property was used by the previous tenant as a café.  Ms Rajpreet then asked Mr Lau to confirm with the landlord whether a food licence would be obtainable for the Property.  Mr Lau replied that he will make enquires with the landlord.

20.  According to Ms Rajpreet’s evidence, she in fact had the above conversation with Mr Lau in Punti first, but she asked Mr Lau the same questions again in English so that the plaintiff could understand.  When she asked Mr Lau in English, Mr Lau replied in English and gave the same replies as what he did in Punti.  A few days later, Mr Lau telephoned Ms Rajpreet and said that the landlord confirmed that a food licence would not be a problem since the Property was previously used as a café.

21.  Mr Lau was called as a witness by the defendant.  According to his evidence in his witness statement, the plaintiff and Ms Rajpreet came to his shop on 1 December 2009, and asked about the particulars concerning a shop situated at 14A Po Tung Road and if there were water and electricity supplies at that shop.  Mr Lau told them that he had no instruction from the landlord of that shop to handle the leasing matter.  The plaintiff then told Mr Lau that the rent offered for that shop was about $20,000.00 and asked Mr Lau to introduce other units within the same location with lower rent to him.  Mr Lau then introduced the ground floor of the Property to him.  The plaintiff asked Mr Lau to indicate to him the location of the Property.  In the course of their conversation, the plaintiff asked Mr Lau if the ground floor of the Property was suitable for catering business.  Mr Lau told him that he was just responsible for the leasing of the premises and he had no knowledge about catering business.  Mr Lau told the plaintiff to instruct a food licensing consultant to check it out on his own.  Furthermore, Mr Lau told the plaintiff that as the landlord of the Property had not left the keys with him, he had to make appointment with the landlord for the inspection of the premises.  The plaintiff then told him that he would like to have a look of the Property from the outside first, and then he left the shop.  Thus, Mr Lau denies that he had ever made the alleged representations to the plaintiff, nor did he go to the Property with the plaintiff and his wife on 1 December 2009.

22.  Mr Lau clarifies in his oral evidence that he did not in fact communicate with the plaintiff directly or vice versa before entering into the Tenancy Agreement. All along, he only communicated with Ms Rajpreet in Punti, and she was acting as the plaintiff’s interpreter and/or representative.

23.  Thus, on this issue of whether the alleged representations were made by Mr Lau, it is Mr Lau’s words against the plaintiff and Ms Rajpreet’s words.  It is a question of whose evidence I should accept.  In assessing the credibility of these witnesses, I bear in mind the principles laid down in Star Glory Investment Ltd v Kai Tuo (H.K.) Technology Co Ltd and others, HCA 3523 of 2002 (see also Lee Fung Wing v Yan Paul Po Ting [2009] 5 HKLRD 573).  The appropriate tests to adopt are as follows: -

“There are two objective tests for assessing a witness’s credibility regarding a matter to which he has testified:-

(a) Whether that part of his testimony is inherently plausible or implausible;

(b) Whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).

Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility.  Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony.  For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest.”

24.  Having considered all the evidence and submissions, I came to the conclusion that Mr Lau’s evidence is more credible than the plaintiff and Ms Rajpreet’s evidence. First of all, I found it very strange and incredible that Ms Rajpreet would repeat the conversation with Mr Lau in English so that the plaintiff could understand.  According to the plaintiff’s oral evidence in court, he did not understand English and relied on Ms Rajpreet’s translation in Punjabi of what Mr Lau said.  Ms Rajpreet could have just translated what Mr Lau said in Punti to Punjabi for the plaintiff to understand.  Mr Lau all along communicated with Ms Rajpreet in Punti.  It is unbelievable that he would suddenly answer all the questions again in English just because he was asked the same questions again by Ms Rajpreet in English.  Mr Lau’s evidence is that he would not use English day to day and if there were any English speaking customers, he would just hand over those customers to his colleagues.  I accept that Mr Lau’s English standard is not high and hence he would not deal with English customers.  Thus, I find it difficult to accept that he would reply spontaneously in English just because he was asked in English.  The plaintiff and Ms Rajpreet’s evidence in this regard is inherently implausible.

25.  If the sole purpose of renting the ground floor of the Property was for opening a restaurant and the 1^st and 2^nd Representations were so important to the plaintiff, it is very strange that the plaintiff did not put in any terms or remarks in the provisional tenancy agreement and the Tenancy Agreement to that effect.  Instead, it is only stated in the Tenancy Agreement that the premises were for “Commercial/Shop” purpose only.  Ms Rajpreet tried to explain that Mr Lau told her that restaurant was under the category of “Commercial”. If that was the case, why put down “Shop” then?  A shop would not be the same as a restaurant.  This express term in the Tenancy Agreement clearly shows that the premises were not rented for the sole purpose of running a restaurant.  It corresponds more to Mr Lau’s case that Ms Rajpreet only told him that the premises were for “catering business” or “Italian pizza take-away business”. 

26.  The Tenancy Agreement had been amended before it was finally signed by both parties.  The plaintiff had the opportunities to add in further terms and remarks such as an additional 15 days as rent free period and an option for a second year lease.  If indeed obtaining a restaurant/food licence was so important to the plaintiff, there was no reason for the plaintiff to omit mentioning this condition in the Tenancy Agreement.  After all, if it was the plaintiff’s case that there was an oral agreement or warranty that the premises could obtain a restaurant/food licence, it would be strange that such an oral agreement or warranty was not incorporated into or at least referred to in the Tenancy Agreement.  In fact, such an omission in the Tenancy Agreement shows that the plaintiff’s case is not credible.  In other words, the plaintiff’s evidence is contradicted by this contemporaneous document.  Hence, I do not find that there was any oral agreement as alleged or at all.  The Tenancy Agreement was the entire agreement between the parties.

27.  Moreover, the plaintiff’s evidence is in many ways unreliable and discredited under cross-examination.  He forgot when he first started searching for shops in Sai Kung area, but he said he had approached 1 to 2 property agents.  He could not remember when he first met Mr Lau and could not even remember his name at the beginning of the cross-examination.  At first he said he heard the conversation in English between his wife and Mr Lau after he decided to rent the premises, but later changed to say that it was before the renting of it.  When he was asked why he did not include the term that a restaurant/food licence could be obtained at the premises if it was so important, he avoided answering the question by saying that he could not tell this but his wife could. 

28.  Ms Rajpreet’s evidence is also unreliable.  She could not remember the date when she first met Mr Lau and how many estate agents she met.  If that was the case, how could she remember so clearly that it was Mr Lau who told her that there was no problem in obtaining a food licence for the premises? The evidence shows that the plaintiff had approached 4 estate agents.  Could it be another agent who took the plaintiff and her to the Property and said those things?  When she was asked why food licence was not included in the Tenancy Agreement if it was so important, she just said Mr Lau told her that the restaurant fell within the category of “Commercial” as stated in the Tenancy Agreement.  However, it still does not mean that a restaurant licence could be obtained at the premises. There is no reason for her to be satisfied that a restaurant licence could be obtained by reference to just the word “Commercial”.

29.  On the other hand, I find Mr Lau to be a credible witness.  Although in his witness statement, he mixed up the plaintiff and Ms Rajpreet, I accept his explanation that he had in fact meant communicating with the plaintiff through Ms Rajpreet.  So it is just a wrong choice of words in his witness statement when he made reference to the plaintiff.  His evidence on the whole is coherent, reliable and unshaken upon cross-examination.

30.  More importantly, I accept his evidence because I do not believe that Mr Lau would represent and confirm something like obtaining a restaurant/food licence to the plaintiff or Ms Rajpreet.  As an estate agent, Mr Lau should know that obtaining a restaurant or food licence is not a simple matter.  I do not believe that he had the expertise or knowledge to say for sure that the Property would have no problem in obtaining such a licence.  It is also unbelievable that he would have such a confirmation from the defendant.  The defendant was in no position to say that such a licence could be obtained for the Property.   Thus, it is just unbelievable that Mr Lau had obtained such a confirmation from the defendant and then related it to Ms Rajpreet.  I do not believe that Mr Lau would go to that extent to induce the plaintiff to sign the Tenancy Agreement by confirming something that he or the defendant could not confirm.

31.  In the circumstances, I do not find that the 1^st and 2^nd Representations were ever made by Mr Lau.

Were the alleged representations untrue?

32.  Even assuming the 1^st and 2^nd Representations were made by Mr Lau, the plaintiff still has to prove that they were untrue.

33.  Concerning the 1^st Representation, there is simply no evidence from the plaintiff to prove that the Property was never used as a café.  On the contrary, the defendant produced the land search record to show that the Property was once leased to a company in the name of “Restaurant Si Van Limited” during 1993/1994.  Even though it is not conclusive proof that this company operated a café at the Property or that the café was licensed, such a possibility seems to exist.  The burden is however on the plaintiff to prove that the 1^st Representation was untrue.  The plaintiff has simply failed to discharge this burden.

34.  As to the 2^nd Representation, the plaintiff only engaged one Mr Fung Ming (“Mr Fung”) of Innovative Development Co to apply for the licence.  Mr Fung was called as the plaintiff’s witness, but he has no professional qualification and was only educated up to Form 5.  Although he has 15 years’ experience in applying for food licence, he did not give any expert evidence on whether a restaurant/food licence could or could not be obtained for the Property.  His evidence is simply to relate what the Director of Lands commented about the application.

35.  In the letter dated 7 April 2010 from FEHD, it is mentioned that an objection has been raised by the Director of Lands and the application will not be processed further, but if the objection is overcome, the plaintiff can apply again.  The objection is in relation to the unauthorized additional floor in the Property, which presumably should be the cockloft of the Property.  Thus, it is not a case that a restaurant/food licence can never be obtained for the Property.  It is just a case that the objection has to be overcome.  In fact in the comments made by the Director of Lands, it is stated that “A cockloft may be erected with an area not exceed 50% of the built-over area of the building and only accessible from the ground floor of the building”.  If the cockloft of the Property can comply with these requirements, a licence can still be obtained.

36.  Thus, the 2^nd Representation may not be totally untrue, but subject to rectification of the cockloft.

Were the alleged representations made with the defendant’s authority?

37.  Even if Mr Lau did make the 1^st and 2^nd Representations and they were both untrue, the plaintiff is still required to prove that Mr Lau had the defendant’s actual or ostensible authority to make the representations so that the defendant is liable for Mr Lau’s acts.  Whether an estate agent has such an authority is a matter of fact in every case (see Cheng Kwok-fai v Mok Yiu-wah, Peter [1990] 2 HKLR 440 and Chun Sue Kwan v Sky Harvest Limited and another, CACV 174/2007).

38.  There is no evidence at all that the defendant had given actual authority to Mr Lau to make the 1^st and 2^nd Representations, and hence the plaintiff’s case could be based on ostensible authority at most.  I accept that in the circumstances of this case, when the defendant was never involved directly with the plaintiff in any negotiations and the plaintiff could not contact the defendant at all, Mr Lau would appear to anyone to have a wider authority to represent the defendant than just negotiating for rent and tenure as suggested by the defendant.  The defendant’s act in leaving everything to Mr Lau to handle, including amendment of the Tenancy Agreement, must amount to a holding out that Mr Lau had authority to give further details of the Property to the plaintiff.  If Mr Lau represented to the plaintiff or Ms Rajpreet that he had asked the defendant to confirm the 1^st and 2^nd Representations, Mr Lau would be acting as the defendant’s agent to relate such information to the plaintiff or Ms Rajpreet, and it must be within his ostensible authority to do so.

39.  Thus, it is my finding that Mr Lau did have ostensible authority to make the 1^st and 2^nd Representations to the plaintiff (if they were indeed made) on behalf of the defendant.

Did the plaintiff rely on the alleged representations?

40.  I am however not satisfied at all that the plaintiff had relied on the 1^st and 2^nd Representations to enter into the Tenancy Agreement.  It is alleged that the 1^st and 2^nd Representations were made on the first day when the plaintiff and Ms Rajpreet met Mr Lau.  It is just unbelievable that they would place such great reliance on a person whom they just met.  In fact, during cross-examination, the plaintiff admitted that he relied on the expert hired by his wife for obtaining food licence.  It is not disputed that they did hire Mr Fung to deal with the licence application.  It supports Mr Lau’s evidence that he did ask them to instruct a food licensing consultant to check it out.  It is incredible to suggest that the plaintiff only instructed Mr Fung to do the mechanical exercise in form filling for the application of food licence without consulting him about the feasibility of obtaining such a licence first.

41.  Although Mr Fung’s evidence is that his company was instructed by Ms Rajpreet on 4 January 2010, after the Tenancy Agreement was signed, this could just be the date of giving formal instructions to proceed with the licence application. The plaintiff’s evidence is that he did not know the name of the expert and did not recall when his wife hired that person.  It is still possible that Mr Fung or another person had been consulted beforehand on an informal basis.  In fact, it would be strange if Mr Fung was instructed straight away on 4 January 2010 without being approached by Ms Rajpreet informally first. 

42.  In any event, even if the plaintiff or Ms Rajpreet had not consulted an expert before signing the Tenancy Agreement, it does not mean that they would rely on the alleged representations to enter into the Tenancy Agreement.  As aforesaid, if such representations were so important, they should have them incorporated into the Tenancy Agreement.  According to Ms Rajpreet’s evidence, the wordings of the alleged representations were that “a food licence would not be a problem since the Property was previously used as a café”.  Such wordings could hardly amount to any guarantee or warranty.  I do not believe that the plaintiff or Ms Rajpreet would just take these words and believe that they could also obtain a licence themselves to run a restaurant.  In fact, I do not believe any reasonable person would take such words seriously to mean that he or she could also obtain a restaurant licence without any problem.

43.  It is perhaps true that the plaintiff did incur a large sum of money to start the business at the Property.  However, it still does not mean that he did so because of the alleged representations.  It could be the case that he was prepared to take the risk or he had under-estimated the risk totally independent of the alleged representations.  The plaintiff admitted that he had dine-in customers even before he had any restaurant/food licence.  It shows that he was prepared to take the risk of doing the business without a proper licence.  The plaintiff also said that it was his first time in running a restaurant business even though he had been a cook for many years.  So it could also be the case that he had under-estimated the risk in obtaining a restaurant licence due to his inexperience in running the business.

44.  In the circumstances, I do not find that the plaintiff had relied on the alleged representations to enter into the Tenancy Agreement.

Was the defendant or Mr Lau under a duty to disclose the illegal structure?

45.  I do not find that the plaintiff could establish such a duty on the part of the defendant or Mr Lau.  The Tenancy Agreement states clearly that only the ground floor of the Property was leased to the plaintiff and it was leased on an “as is” basis.  The rule of caveat emptor applies (see Fortune Global Development Ltd v Shung Cheong Food Trading Ltd [2002] 2 HKLRD 447).

46.  Thus, the plaintiff had to rely on his own inspection of the Property, which he did. If the plaintiff could not find out the problem of the cockloft upon inspection, there is no reason to suggest that the defendant or Mr Lau would be aware of the problem either.  It is the evidence of the defendant and Mr Lau that they did not know that the cockloft was illegal.  The plaintiff suggests that the defendant should be aware of the illegality of the cockloft because of the involvement of lawyer when the defendant purchased the Property.  However, it is possible that even the lawyer was not aware of the problem as the Property was purchased as a whole, and such a problem would not be revealed in the Land Registry.

47.  I am therefore of the view that the defendant and Mr Lau were not under any duty to disclose the illegality of the cockloft to the plaintiff.

Who is responsible for the refusal of the restaurant/food licence due to the existence of the illegal structure?

48.  As aforesaid, I do not find that the defendant or Mr Lau had any duty to disclose the illegality of the cockloft.  By the same token, they would not be responsible for the existence of the cockloft.  The plaintiff only rented the ground floor of the Property to the plaintiff on an “as is” basis.  There is no right for the plaintiff to demand the removal of the cockloft.  The defendant had never undertaken any responsibility of applying the licence for the plaintiff.  It is just unthinkable that the defendant or Mr Lau should be responsible for the refusal of the licence.  Thus, the plaintiff should bear the responsibility himself.

What are the damages for the plaintiff if the defendant is liable for misrepresentation?

49.  If the defendant is liable for misrepresentation, the plaintiff is entitled to be placed in the position they would be in if no misrepresentation had been made. Thus, he would be entitled to claim the security deposit & rent in the sum of $24,000.00, materials costs of renovation & equipment in the sum of $322,043.40 and labour costs in the sum of $200,000.00, if they can all be substantiated.  However, I do not see how the plaintiff could claim for the loss of profits in the sum of $200,000.00.  The plaintiff is not entitled to recover for loss of prospective profits merely on the ground that he would have obtained them if the representation had been true (see Halsbury’s Laws of Hong Kong, 2^nd ed, Volume 40, para 275.109).  Thus, I would not allow the loss of profits claim at all.

50.  By way of the 2^nd supplemental witness statement of Ms Rajpreet, the plaintiff gave further details of the loss and damage.  However, I agree with the defendant that some of the items mentioned in this witness statement are new items and have not been pleaded in the Statement of Claim.  The plaintiff cannot claim for these new items and should be confined to the items and the amounts pleaded.

51.  There is no problem for the plaintiff to claim back the security deposit of $24,000.00 as he would not need to spend this sum but for the misrepresentation (assuming the defendant is liable) and it is clear that he had incurred this sum.

52.  As to the materials costs of renovation & equipment, the amount claimed by the plaintiff is increased to $452,740.90.  As aforesaid, the plaintiff should not be allowed to claim more than what he has pleaded, ie $322,043.40.  The defendant challenges this amount by saying that there were no supporting invoices that could substantiate the claimed amount and most of the invoices found in the bundle were unknown, messy and even irrelevant.  However, the plaintiff has given detailed names of the companies from which he purchased the decoration materials and equipment.  I believe that he would not make up these names and the amounts.  Even assuming some of the items might not be supported by invoices or are not related to the loss suffered as a result of the misrepresentations, I am prepared to accept that his loss would not be lower than the amount originally claimed, ie $322,043.40.  Thus, for this item, I assess the amount to be $322,043.40.

53.  The labour costs of $200,000.00 were calculated on the basis that the plaintiff had hired 6 casual workers to perform renovation works from mid December 2010 to 22 January 2011 (37 days in total) and the daily wage of each worker was $1,000.00, but there is no supporting document for such payments.  During cross-examination, the plaintiff admitted that he employed 3 to 4 workers who were his friends at $800.00 per day, but he could not tell how much in total was paid.  He paid in cash and hence there was no payment record.  Ms Rajpreet also admitted under cross-examination that the workers were paid $800.00 per day plus food and bus fare.  I accept that there were actual renovation works done and the plaintiff did engage workers to do the works.  Even though the workers were the plaintiff’s friends, there is no reason to suggest that they did not receive any pay.  $800 per day is a reasonable wage.  If food and bus fares were added, it could be about $850 per worker per day.  I am prepared to accept that the workers did work for 37 days, but the no. of workers was just 3 to 4.  So on average, I take it to be 3.5 workers per day.  The total labour cost would be $110,075.00 ($850.00 x 3.5 x 37).

54.  In the circumstances, the total loss and damage recoverable by the plaintiff is in the sum of $456,118.40 ($24,000.00 + $322,043.40 + $110,075.00).

Is the plaintiff liable for the counterclaim?

55.  It is clear that the plaintiff did not pay the rent for April and May 2010, and there is no dispute that the rent payable for this period $24,000.00.  If the plaintiff fails on his claim, there is no defence to this counterclaim at all.

56.  The defendant also counterclaims $28,000.00 for restoring the ground floor of the Property to bare-shell condition and repairing some water pipes as they were damaged by the plaintiff causing water leakage to the ground floor of the Property and the shop next door.

57.  On the other hand, the plaintiff alleges that he had returned the ground floor of the Property to the defendant in bare-shell condition and denies that he damaged the water pipes.  The plaintiff further avers that there was some plumbing work in progress and the plaintiff had turned off the main switch for water supply.  However, without any notice to the plaintiff, the defendant turned on the main switch for the water supply so that it caused the water leakage to the Property.  Thus, the water leakage was caused solely by the defendant.

58.  Ms Rajpreet also gave evidence that the key for the ground floor of the Property was given to her solicitors for return to the defendant on 20 May 2010.  She took pictures of the premises on 19 May 2010 showing what were installed in the premises.  However, I accept Mr Lau’s evidence that he took some pictures from the outside of the Property on 11 June 2010 and there were still some workers dismantling something inside the ground floor of the Property.  Thus, it is clear that the plaintiff was still in possession of the premises on 11 June 2010.

59.  There was no formal handover procedure of the ground floor of the Property back to the defendant.  In fact, vacant possession was given back on 14 June 2010 when there was a court order from the Lands Tribunal for the plaintiff to do so. The plaintiff’s solicitors did not pass the key to the defendant on 20 May 2010, but just issued a letter to the defendant’s solicitors on 11 June 2010 asking whether they had instructions to accept the key.  It is unbelievable that the plaintiff’s solicitors would issue the letter only on 11 June 2010 if they had received it from the plaintiff on 20 May 2010.

60.  It can be seen from the pictures produced by the defendant that there were many broken surfaces in the floor tiles and serious water leakage problem.  The walls were damaged by the water leakage.  Although the defendant only found out the water leakage problem on 15 June 2010, one day after the plaintiff returned vacant possession to the defendant, it is clear that the water leakage problem had started earlier than 15 June 2010.  It is possible that it occurred sometime between 20 May 2010 and 14 June 2010.  It is the period when the plaintiff still had possession of the premises and should be responsible for that.  I do not accept the plaintiff’s bare allegation that the water leakage problem was caused by the defendant turning on the main switch for the water supply.  The invoice produced by the defendant shows clearly that the floor and the water pipes were broken and had to be repaired at the cost of $18,000.00. The walls were also damaged by the water leakage and had to be repaired at the cost of $10,000.00 as shown in another invoice produced by the defendant.

61.  Thus, I find that the plaintiff did not return the premises to the defendant in its original bare-shell condition.  The floor and the walls were damaged and the water pipes were broken, the total repair cost of which was in the sum of $28,000.00 as shown in the invoices produced by the defendant.  The plaintiff should be responsible for this counterclaim.

62.  The defendant counterclaims for the loss of rental income from 14 June 2010 to 19 January 2011 at the rate of $12,000.00 per month, but the amount claimed is only for $84,000.00, ie 7 months’ loss.  I accept the defendant’s evidence that the ground floor of the Property could only be rented out again in February 2011 at the monthly rent of $12,000.00.  I accept that the defendant had already taken reasonable steps to rent out the ground floor of the Property as soon as possible, but it could only be achieved in February 2011.  As the Tenancy Agreement did not contain any break clause, the defendant is entitled to claim this loss from the plaintiff for his premature termination of the Tenancy Agreement (see Yiktown Properties Limited v Jeon Bok Sool, HCA 2189/2007).

63.  The defendant is also entitled to retain the security deposit of $24,000.00 to set off the damages it suffered.  Clause 7 of the Tenancy Agreement clearly allows the defendant to deduct its loss and damage caused by the plaintiff’s breach of the Tenancy Agreement from the security deposit.

64.  I therefore find that the plaintiff is liable for the defendant’s counterclaim.

What are the damages of the counterclaim?

65.  The damages should be the same as mentioned above.  They are: -

(1) Cost of repairing the floor and water pipes	$18,000.00
(2) Cost of repairing the walls	$10,000.00
(3) Arrears of rent	$24,000.00
(4) Loss of rental income	$84,000.00
Total:	$136,000.00

66.  However, the security deposit should be used to set off part of the above sum.  Thus, the total sum that the plaintiff is liable to pay to the defendant is $112,000.00 ($136,000.00 - $24,000.00).

Conclusion

67.  As I do not find that the 1^st and 2^nd Representations were made by Mr Lau, there is no basis for the plaintiff to claim any damages against the defendant for breach of any oral agreement or for misrepresentation (or even breach of warranties).  Even if such representations were made, I do not find that the plaintiff had relied on them to enter into the Tenancy Agreement.  Thus, the plaintiff’s claim for damages must fail.

68.  As aforesaid, the defendant is entitled to counterclaim against the plaintiff for the sum of $112,000.00.  Thus, the defendant succeeds in its counterclaim.

69.  I therefore order as follows:-

(1)   The plaintiff’s claim be dismissed;

(2)   The plaintiff do pay the defendant arrears of rent for the months of April and May 2010 in the sum of $24,000.00;

(3)   The plaintiff do pay the defendant damages in the sum of $112,000.00;

(4)   The security deposit of $24,000.00 be used to deduct part of the aforesaid judgment sums;

(5)   The plaintiff do pay the defendant interest on the remaining judgment sums after the said deduction (ie a total of $112,000.00) at judgment rate from the date of the writ until judgment and thereafter at judgment rate until payment; and

(6)   Costs order nisi: The plaintiff do pay the defendant costs of the action (including the counterclaim) with certificate for counsel to be taxed if not agreed.