PANG KIN HANG AND OTHERS v. TSUI HUNG RESTAURANT LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an appeal from a Master's decision on the 3rd March, 1986 on the plaintiffs' application far summary judgment under 0.14,  giving the defendant conditional leave to defend.

2. The five plaintiffs as landlord let certain premises known as the ground, first and second floors of Nos. 15 and 15A, Saigon Street, Kowloon and the third floor of No. 15A Saigon Street to the defendant company for business purposes for a fixed term of five years, commencing from the 1st January, 1981 and expiring on the 31st December, 1985.

3. On the 26th November, 1985 the plaintiffs' solicitors notified the tenant of their clients' intention to recover possession of the above premises upon expiration of the tenancy when they were required to deliver up vacant possession.

4. The term ran out but the defendant company stayed on. On the 13th January, 1986 the plaintiffs issued the writ claiming, inter alia, vacant possession and mesne profits. After the defendant company filed the acknowledgment of service indicating its intention to contest the proceedings the plaintiffs took out the summons for summary judgment based on the affirmation of the third plaintiff who recited the contents of the statement of claim and verily believed that there was no defence to the action.

5. An affirmation in reply was filed by Mr CHOW Hoi-chuen, a director of the defendant company, setting out a series of approaches that were made to some of the plaintiffs over a period of two months from mid-November, 1985 to negotiate a renewal of the tenancy. Based on the various assurances and confirmations given to him, Mr Chow said that those amounted to an oral or collateral agreement entitling the defendant company to the occupation, possession and enjoyment of the suit premises as a tenant, and/or consent was duly given by the plaintiffs pending the signing of a written agreement between the parties.

6. Mr Cunningham, for the plaintiff, said that the defence was along two lines: there was in existence an agreement for a new or renewed tenancy and secondly, pending execution of this new or renewed tenancy the defendant would be allowed to stay in the premises by virtue of estoppel or a collateral agreement as it was called. Learned Counsel's first contention was that there was no written document to support any of the oral conversations and the only written documents that there are contradict such an oral agreement.

7. Besides the initial notice requiring the defendant company to deliver up vacant possession at the end of the term, two other letters, both dated the 16th December, were exhibited to the third plaintiff's second affirmation which was filed on the 14th March to which no objection was taken. In the letter from the defendant's solicitors is disclosed the intention of the defendant to create a new tenancy agreement in respect of the suit premises and additionally, the ground floor of No. 14 and 14A, Cheung Lok Street, Kowloon for a period of five years from the 1st January, 1986 at the monthly rental of $93,000.00. The last paragraph reads:-

"We shall be grateful if you will kindly take your clients' instructions thereon and revert the same to us at your earliest convenience. We wish to make clear that there is no binding agreement between our respective clients unless and until the formal Tenancy Agreement has been duly signed by both parties. "

The plaintiffs' solicitors replied the same day regretting that their client was unable to create a new tenancy as he had agreed to let the premises to a third party.

8. It is true as Mr Cunningham said that Mr Chow did not refer to this correspondence in his affirmation and only sought to explain the last paragraph of his solicitors' letter in his second affirmation which was filed on the 20th March. The fact of the matter is, as was pointed out by Mrs Yew for the defendant; that no where in his second affirmation did the third plaintiff refute or deny the series of meetings and conversations which Mr Chow had set out, save for saying generally that none of the plaintiffs, including himself, had ever concluded any agreement with the defendant for the grant of a new tenancy. If the meetings mentioned by Mr Chow had taken place, then the question that remains is of what the discussions were about and what conclusions, if any, were reached which quite clearly is a matter of fact depending upon the evidence and the veracity of the witnesses.

9. Mr. Cunningham submitted -that even if all the allegations of the defendant were accepted the legal position would be that the defendant company became a tenant at will on the expiry of the term - Morgan v. William Harrison, Ltd. (1907) 2 Ch. 137 - which on the authority of Martinali v. Rumuz (1953) 2 All E.R. 892 was terminated on the issuance of the writ.

10. Mrs Yew seeks to distinguish the case of Martinali on the basis that there were no prior negotiations for renewal before the writ whereas in the instant case, according to the defendant, there was an oral agreement for a lease with the result that there is no question here of a tenancy at will. All I need say for the purposes of this appeal is that it is well established that if a tenant whose lease has expired be permitted to continue in possession pending a treaty for a further lease, he is not a tenant from year to year, but a tenant strictly at will, until some other interest is granted to him.  The issue here is this: could the plaintiffs terminate the tenancy at will in the face of the oral collateral agreement upon which the defendant relies. That, in my opinion, will depend first and foremost upon the existence or otherwise of that alleged agreement which is a matter of proof.

11. Mr Cunningham's second contention is that there was no evidence that any of the alleged assurances were made on behalf of all the plaintiffs collectively. He argued that as the plaintiffs were suing collectively as landlord, unless such assurances were made by their agent in a collective sense, the others will not be bound by those assurances.  Mrs Yew says that this also is an issue of fact. This issue involves the extent of the agent's authority on the same basis as, I should have thought, that of a partner Mr Chow dealt with all the plaintiffs save No. 3, albeit separately but presumably in their capacity as the joint owners. If they are now to say that they are not bound collectively by what one or the other of them said or did, the burden quite clearly is on them to satisfy the trial judge that the one or more of them who gave those assurances did so without the requisite authority.

12. The third contention on behalf of the plaintiffs is that, even if all the representations are accepted and is accepted also that one plaintiff could represent all of them, there was no binding agreement reached, because: (1) rent was not agreed and was left to be agreed which made the agreement void for uncertainty. The case of Kings Motors (Oxford) Ltd. v. Lax. & Another. (1970) 1 W. L. R. 426 is cited in support. There was an option provision in the lease in that case and with regard to the rent it was couched in these words:  ".......... then the landlords will let the premises to the tenants for a further term of seven years at such a rental as may be agreed upon between the parties hereto in writing prior to the ........ Burgess V.-C held that "in substance it amounts to no more than a contract to enter into a contract which is always given as the classic example of an agreement which is unenforceable. " Mrs Yew said that in the instant case, the agreement on the rental was "on such market rate of rental to be agreed," which is referrable to an independent valuer. I need only refer to Woodfall on Landlord and Tenant, 28th Edition at p.932:

"Where the rent was expressed to be the market rent, but no machinery for assessing it was provided in the option clause, the Court held that it had jurisdiction to determine it - Brown v. Gould (1972) Ch. 53. "

(2) It is submitted the agreement is not binding because the term of the lease was never specified or when the new tenancy was to, commence. Reliance is placed on Harvey v. Pratt (1965) 2 All E.R. 786. For the defendant it was argued that unlike that case where the Court was dealing with a written document which contained all the terms but the date of commencement of the lease, here we have a series of meetings between the parties at which an agreement was finalised on the 20th December as is set out in para. 9 of Mr Chow's first affirmation, and that all that remained was to embody it in a written document. It is trite to say that the mere fact that the parties have stipulated that there shall afterwards be a formal contract prepared does not by itself show that they continue merely in negotiation, and it is a question of construction whether the execution of a further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to shall go through. CHITTY on Contracts, 25th edition states the position thus in para. 116:

"In some cases of incomplete agreements it is said that there is a contract to make a contract'. This expression may refer to a number of different situations. One possibility is that the parties may agree to execute a formal document incorporating terms on which they have previously agreed. Such a contract to make a contract is perfectly binding ....... Another possibility is that the parties have simply agreed to negotiate. In spite of dicta to the contrary, it has been told that such an agreement is not a contract because it is too uncertain to have any binding forces' "

In one of the letters referred to, the defendant has mentioned both the term and the date of commencement, and what weight is to be attached to it in the context of the alleged oral agreement is surely a matter for the trial judge.

13. The plaintiffs' final contention relates to estoppel.  Mr Cunningham submits, relying on Freeman v. Cooke (1848-60) All E.R.  Rep. 185, that even assuming there was such an assurance that the defendant could stay on pending the execution of a renewed tenancy, in all the circumstances it was unreasonable to rely on it because of the original notice and the unequivocal rejection by the plaintiffs collectively to grant a new lease in their letter of the 16th December. For the defendant it is argued that what is reasonable or not reasonable is a matter of proof. With that I agree, more so because of the defendant's claim that the negotiations continued even after those letters which were exchanged between the solicitors and crystallized on the 20th December.

14. In all the circumstances, I take the view that the extent of the negotiations for a new lease and whether those crystallized into any substantial agreement between the parties are matters fit for enquiry and, for the reasons I have endeavoured to give, the outcome will depend upon the construction of the alleged oral agreement.  I am of the opinion therefore that the Master came to a proper decision and this appeal is dismissed with costs.