TANG WAI MAN v. FOTOSKY INVESTMENT LTD

HCA 456/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 456 OF 2002

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J U D G M E N T

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1.  The plaintiff, Mr Tang Wai Man, had been working in the car parking trade for some years.  He wanted to operate his own car parking business.  To that end, he entered into a written agreement for the lease of car parking spaces in basement floor B4 of the defendant’s building for the purpose of parking motor vehicles, and paid a deposit of $80,000. 

2.  The defendant’s case is that the parking spaces were to be leased to the plaintiff for use as a second-hand car showroom, rather than for normal vehicle parking.  When, before the date of entry, it was discovered that the plaintiff was advertising the spaces for vehicle parking, at prices massively undercutting its own, the defendant refused to go ahead with the formal lease and returned his deposit. 

3.  The plaintiff never got to operate a car parking business in the B4 car park.  Now he claims for a declaration that the written agreement is binding, and for specific performance or in the alternative for damages, being the loss of the income he says he would have made. 

Background and correspondence

4.  The building concerned is the Dragon Centre, in Sham Shui Po.  The defendant owns the building, and it is managed for the defendant by Dragon Centre Management Ltd (“DCML”).  The building has five basement floors.  The first is used for car parks, loading and unloading and the like, and the others for vehicle parking.  At the relevant time the car parking business in the basement floors was managed for the defendant by Wilson Parking (Hong Kong) Ltd.  Earlier Wilson had been the tenant, but that arrangement ended in 2000.

5.  On 7 December 2001, an estate agent, Ms Elizabeth Lam of GSI Property Agency Ltd, sent to Mr Andrew Leung Sak Ki of DCML a signed offer on behalf of a client named Billion Motors Company to lease the whole lot of B4 for 3 years, with an option to continue for a further year.  The offer letter was headed “Subject to Contract”.  It was sent by fax, and in the cover sheet Ms Lam stated that the intended purpose of the premises was for the exhibition of motor vehicles and accessories which would be mutually beneficial to the shopping centre and the car park. 

6.  There was some negotiation of terms and on 14 December 2001, Ms Lam sent a revised signed offer letter, again headed “Subject to Contract” to DCML.  On 18 December, a further revision was sent and it appears that Mr Leung revised some terms in handwriting, then signed the letter.  This revision was not headed “Subject to Contract”.  DCML then sent to Ms Lam a further draft using its own standard form, containing a lot of blanks, and another draft with the blanks filled in by hand, on 18 December.

7.  In all these documents, the tenant’s name is given as Billion Motors Company.  In DCML’s standard form there is a standard term as to use and in the latest document, the standard use as a shop was amended in handwriting so as to read:

“For the purpose of parking motor vehicles and trade as Billion Motors Company.”

On 4 January 2002 at 10.26 a.m., Ms Lam sent to Mr Leung another fax message in these terms:

“Please find below the name of the tenant.  The address provided is temporary, as the client needs to verify it with his audits:

Tenant:  Best Time Management Ltd.

Address:  G/F, 39 King Yip St., Kwun Tong, Kowloon.”

8.  In fact, Best Time had been incorporated on 10 August 2001, and acquired by the plaintiff and one Law Kit Ping on 3 January 2002.  They were the only directors, and were shareholders in the proportion of 60% to 40%. 

9.  This was followed by another fax sent by Ms Lam at 10.47 a.m. that day, saying

“As the documents is not currently available my client wishes to sign the initial agreement through his own personal name.  The information is as below”

and this is followed by the name, identity card number and address of the plaintiff.

The Letter of Agreement

10.  The was signed by Mr Leung beforehand, and by the plaintiff at a meeting at DCML’s offices on 4 January 2002.  It reads:

“In regard to the site inspection between your goodself and the undersigned, we understand that you are prepared to rent the captioned premises upon the following terms and conditions:

Landlord: Fotosky Investment Limited

Tenant: Tang Wai Man

Identity Card No. XXXXXXX(X)

Use: For the purpose of parking motor vehicles

Lease Term: 24 months commencing from 1 February 2002 and expiring on 31 January 2004.

Rent: HK$80,000.00 per calendar month, inclusive of government rates, management fee and lighting fees.

Option: 12 months from 1st February 2004 to 31 January 2005 at HK$90,000.00 per calendar month.

Rent-free Period: 1 month to be given at the 24^th month of the 1^st lease term.  However, the other outgoings shall be paid by Tenant during this period.

Government Rates : Payable by Landlord for the 183 numbers of carparking space at Basement 4.  (Subject to Government assessment)

Holding Deposit: HK$80,000.00 (equivalent to one month’s rent) to reserve the subject premises.  The said deposit shall become the first month’s rent upon signing of the formal Tenancy Agreement.  If the tenant fails or refuses to sign the Tenancy Agreement for whatever reason the said holding deposit shall be forfeited in full to the Landlord.

Security Deposit: HKS 160,000.00 (equivalent to two months’ average rent) is payable upon signing of the formal Tenancy Agreement or the delivery of the premises to the Tenant, whichever is earlier.

Handover Condition: The landlord will handover the premises in an ‘as-is’ condition.

Legal Cost: Each party to bear its own legal cost

Stamp Duty: To be shared equally between both parties.

Tenancy Agreement: Tenant shall sign the formal Tenancy Agreement within 14 days of presentation of the said Tenancy Agreement to the Tenant or its solicitors.  Such form of Tenancy Agreement shall be in the Landlord’s standard form of Tenancy Agreement for Dragon Centre.  If the Tenant fails to execute the formal Tenancy Agreement for whatever reason, fails to perform or comply with any of the terms herein contained, the Landlord may determine this tenancy and re-enter the premise if possession of the premises shall have been delivered to the Tenant and the holding deposit and security deposit paid hereunder shall be forfeited to the Landlord in full, without prejudice to any other right or remedy of the Landlord in respect of any breach by the Tenant of the terms herein contained.

We would be grateful if you could confirm your acceptance to the above by signing and returning to us the duplicate of this letter on or before 4th January 2002, together with a cheque made payable to ‘Eton Properties Agency Co. Ltd’ amounting to HK$80,000.00.  Otherwise, we shall assume that you are no longer interested in taking up the tenancy and shall offer the premises for lease to some other interested parties.

Upon receipt of your formal acceptance, we shall proceed to arrange for the Tenancy Agreement.”

What happened next?

11.  An incident report document shows that on 21 January 2001, staff of DCML found advertising fliers for car parking on vehicles within the Dragon Centre car parks on that date.  These fliers were put out in the name of Best Time and offered monthly rental for the parking of private cars or vans at $1,400 and for medium-sized trucks at $2,000, and solicited inquiries to Best Time with a telephone number given.

12.  In fact the defendant was offering monthly parking for cars and vans at $2,900 and medium-sized trucks at $3,200, though it was also offering batch parking (minimum 10 vehicles) for $800 per month per vehicle.   

13.  Mr Leung asked Ms Lam to contact the plaintiff for a meeting, and this meeting was held on 23 January 2002.  Ms Lam did not attend.  There is no dispute that Mr Leung demanded why the plaintiff had advertised parking spaces, and said that he thought that the plaintiff was going to use B4 as a car showroom, or that the upshot of the meeting was that Mr Leung told the plaintiff that if he was going to use B4 for monthly parking, rather than as a car showroom, the defendant would not enter into the formal Tenancy Agreement.

14.  On 28 January the plaintiff through solicitors wrote to DCML (disingenuously, given what had happened at the meeting) asking for delivery of the formal tenancy agreement for approval.  This was met by a reply from the defendant’s solicitors dated 29 January 2002 stating that there was no binding tenancy agreement, or if there was, it had been rescinded by the defendant because of the plaintiff’s misrepresentation; or in the further alternative the plaintiff had repudiated the agreement and the defendant had accepted the repudiation.  The holding deposit of $80,000 was returned and the plaintiff accepted it.

The lease of B5

15.  After the deal for B4 had fallen through, the defendant leased the lower basement B5 to one Asia Wing Development Ltd for 2 years at $190,000 per calendar month from 18 February 2002.  DCML and Asia Wing signed a similar letter of agreement to that concerned in this case on 31 January 2002.  It was headed “subject to contract” and it stipulated the use of the basement to be “for the purpose of car show only”.  A formal tenancy agreement followed on 15 February 2002.

16.  In fact, use of the car parks for car showroom purposes was in breach of the lease conditions between the Government and the defendant.  The breach came to the notice of the Lands Department, which required rectification within 28 days, or payment of a forbearance fee of $1,060,969.00 to extend the rectification period to three months.  The defendant and Asia Wing entered into a surrender agreement, followed by a new lease of 120 spaces in B5 for car parking purposes only, but at the same rent; according to Mr Leung, under the new lease the spaces were used for the storage parking, but not the exhibition of second hand vehicles.

17.  This lease of B5 was used as a comparable in calculations by the plaintiff’s expert, for purposes of quantum. 

Pleadings

18.  The plaintiff’s pleaded case is, quite simply, that the Letter of Agreement constitutes a binding agreement for a lease of B4 for use as a car park; the defendant breached the agreement; and as a result the plaintiff suffered losses.

19.  The defendant’s case is rather more complicated and the Defence is prolix, but its case boils down to this.  The defendant, through DCML, was negotiating all along with a proposed lessee, which was originally named as Billion Motors Company, through that lessee’s agent, Ms Lam.  In the course of negotiations, it was agreed orally between Mr Leung and Ms Lam on behalf of her principal that B4 would be leased for use as a car showroom, and not a car park, that there would be no sub-letting and that the principal would not compete with the defendant’s car parking business.  Alternatively, Ms Lam on behalf of her principal fraudulently or negligently made representations or gave warranties to the same effect.  The defendant relied on the misrepresentations to continue to negotiate.

20.  Ms Lam stated that her principal would use a limited company to enter into the lease, and later that an individual would sign the Letter of Agreement, because the company’s documents were not ready.  That individual was the plaintiff, and the company was Best Time.  In other words, the plaintiff was Ms Lam’s principal.

21.  In any event, on the defendant’s case, the Letter of Agreement was not binding.  It does not on its face contain a binding contract; or it was subject to contract, even though those words did not appear on the face of it, because it was part of ongoing negotiations subject to contract, and ultimately both parties knew that they were to enter into a formal tenancy agreement.

22.  If, however, the Letter of Agreement was binding, it contains terms that B4 is only to be used as a car showroom, and that there is to be no sub-letting and no competition.  The plaintiff breached those terms by advertising monthly parking spaces in B4 and the defendant accepted his repudiatory breach.  Alternatively, the plaintiff, through his agent, made the representations to the same effect fraudulently or negligently, and the defendant having entered into the agreement on the faith of the representations, was entitled to rescind the agreement.

23.  The plaintiff’s Reply is necessarily lengthy but it boils down to this.  Ms Lam was not his agent and had no authority to bind him or his company; she merely introduced him to DCML for the leasing of the premises in consequence of the failure of leasing of the premises as a car showroom to the original proposed lessee.  The Letter of Agreement was not subject to contract but was made for the purpose of allowing time for due diligence and title investigation and other legal procedures before completion of the lease.  There was no agreement that B4 was to be leased as a car showroom, and the defendant knew all along that the plaintiff would use it as a car park.

Issues on Liability

24.  On the plaintiff’s case, he contracted with the defendant for a lease of B4 for use as a car park; the defendant knew that he would use it as such; Ms Lam only introduced him to the defendant as the defendant’s agent but did not act as his agent; and he knew nothing of any requirement that B4 be used as a car showroom.

25.  On the defendant’s case, DCML negotiated all along through Ms Lam with her principal to lease the car park as a car showroom, and ultimately it turned out that the plaintiff was that principal.  There was no binding contract, but if there was, the plaintiff knew, because his agent’s knowledge is imputed to him, that B4 was to be leased to him as a car showroom; he contracted on that basis and breached the contract.

26.  The main plank of the defendant’s defence at trial was that the Letter of Agreement did not constitute a binding contract; on its face, it was subject to the formal Tenancy Agreement to be entered into later.  Alternatively, it was subject to the formal Tenancy Agreement because it was part of part of ongoing “subject to contract” negotiations.  Finally, it was argued that if both of these points were ruled out, the contract had been varied by consent so that the lessee was Best Time, and the plaintiff could not sue on it.  This last point was not pleaded, but the identity of the intended tenant impacts on the question of whether the contract was binding as between the parties.

27.  Whether the Letter of Agreement was subject to the formal Tenancy Agreement may be considered on its own, without going into the facts.  However the other questions are fact-sensitive.  I will therefore deal with the issues in the following order:

(1)     Was the agreement for a car park or a car showroom?

(2)     Did the Letter of Agreement constitute a binding agreement or was it subject, for whatever reason, to the formal Tenancy Agreement?

(3)     If the Letter of Agreement was not subject to the formal Tenancy Agreement, was Ms Lam the plaintiff’s agent? If so did the contract include the terms contended for by the defendant, so that by advertising for monthly parking, the plaintiff repudiated it?

(4)     Alternatively, did the plaintiff fraudulently or negligently represent, through Ms Lam, that B4 would be leased as a car showroom, and that there would be no sub-letting and no competition; did the defendant enter into the contract in reliance on these representations and was it entitled to rescind when the plaintiff advertised for monthly parking?

Car park or car showroom?

28.  It is necessary to consider the evidence of the witnesses, to decide this issue.  The plaintiff himself gave evidence.  Mr Leung, Mr Ken Chan Kin Yee and Mr Claus Chan Man Kit gave evidence for the defendant.  Although Ms Lam had made a witness statement, which had been filed by the plaintiff, she was not called to give evidence.  Her statement was not the subject of a hearsay notice and must be disregarded as evidence of the truth of what is in it.

The witnesses

29.  The plaintiff did not make a good impression.  He struck me as evasive on many points and particularly about his relationship with Yeung Chun Wing, the husband of his business partner, who is, apparently, connected with the car showroom business.  There were, as has been pointed out by Mr Li who appears for the defendant, some discrepancies between his evidence and his witness statements, which he adopted at the end of evidence-in-chief which was taken orally, and some points in his pleadings.  He was very concerned, I think with a view to make it clear that he was not concerned in any previous negotiations to show that Ms Lam was not his agent, and he volunteered evidence to that effect.

30.  Mr Leung and the two other defence witnesses made a considerably better impression on me.  Their demeanour was good, for what that is worth.  I did not find any particular discrepancies between what they said in evidence and in prior statements and there was really nothing which they said which flew in the face of the contemporaneous documents.

Evidence

31.  Ms Lam had been employed for a short period by DCML as Marketing Manager for its car park business in the Dragon Centre.  She resigned on 2 November 2001.  Obviously she maintained the connection.  Mr Leung says that she telephoned him in December 2001 to say that she had a client who wanted to hold a car exhibition in the Dragon Centre car park.  He asked for a proposal by fax, and that is how the negotiations started with the letter of 7 December.

32.  Mr Leung gave evidence of the negotiations he had with Ms Lam.  He said that he told her, after the first letter came in, that the proposed rent was too low; that the client must use B4 for a car show purposes; and that the client must not “poach” the hourly or monthly parking customers.  This obviously makes sense; it appears Mr Leung expected a commercial benefit to the shopping centre if there was a car showroom downstairs; but he would not want the existing car showroom business to lose out.  Indeed later on the plaintiff accepted that he would not himself have made this commercial decision.  There was also, Mr Leung says, some discussion about the provision of entry cards, to allow the vehicles in through the Wilson Parking automatic gates.

33.  All along, Mr Leung says he regarded the correspondence as part of the continuing negotiations.  Up to 18 December, the tenant named in the correspondence was Billion Motors Company.

34.  There is no evidence that Ms Lam ever told Mr Leung that Billion Motors, or whoever was behind them, had dropped out.  He said in chief that she told him “that her client Billion Motors and the people who were going to hold the car show would like to use a limited company for signing the contract”.  He went on to say that he had found this acceptable, but his condition was that they must use B4 as a car showroom and not snatch away Dragon Centre’s parking customers.

35.  It was suggested to Mr Leung that he had made this evidence up, because it did not appear in his witness statement.  It did not.  What appeared there was a denial of what was in Ms Lam’s statement to the effect that she had told him that Billion Motors had dropped out.  I could not see his evidence in court as a recent fabrication, and in any event, it makes sense.  That is how business is very often done.  Individuals come to an agreement first.  If the agreement is struck through an agent or broker, there may be various individuals on one side or the other; some may be putting in money and some not.  One such individual, or more likely a company, may be put forward to sign the legal documents, and if the documents are signed on behalf of a company it is the company which enters into the contract.

36.  The plaintiff says that he never knew anything about Billion Motors.  Indeed no one does.  It seems that the business ceased to trade in 1995.  Such business registration documents as have been obtained from the Registrar date from 1994.

37.  What the plaintiff says is that he was told about this offer of a car park for lease by his friend Yeung Chun Wing.  He did not volunteer the name until I asked him directly.  It appears that this Yeung is the husband of the plaintiff’s business partner in Best Time, Madam Law, and put up the capital for Best Time.  In effect Yeung was to be the plaintiff’s partner in the car park business.

38.  Yeung and his wife are directors and shareholders of companies having the same registered office as Hong Kong Car City Ltd, a company which operates a car showroom in a car park at the New World Centre and the inference is that Yeung is in that business too.  The plaintiff tried to present himself as completely ignorant of any business which Yeung might be doing.  However later it came out that from 2000 to 2005, the plaintiff had been managing a car park in Kwun Tong for Yeung. 

39.  In any event, the plaintiff says that after Yeung told him of this business opportunity and he expressed an interest, Ms Lam contacted him and told him that there were 183 car park spaces for rent.  She asked if he was interested.  He said that he was.  After visiting the car park alone, he saw her again and eventually asked for a contract.  He was ultimately sent a draft contract, in the same form as the Letter of Agreement, but without his name on it as tenant, by fax on 3 January 2001.  He compared this with the Letter of Agreement at the meeting on 4 January, before signing, and then he threw away this faxed draft. 

40.  There is a dispute as to the existence of this faxed draft and also as to whether it was agreed at the meeting that the plaintiff should have 183 entry cards, to let his customers get in and out through Wilson Parking’s electronically controlled gates.

41.  The plaintiff says that he was never involved in the car showroom business, and indeed he was very reluctant to admit that he knew that such things as car exhibitions in car parks even existed.  In any event, his case is that, as far as he knew, he was going to rent B4 as a car park.  He knew nothing about what might have gone before between Billion Motors, Ms Lam and DCML.

42.  I see no reason to doubt the evidence of Mr Leung and, where relevant, Mr Ken Chan and Mr Claus Chan as to what happened before the plaintiff came into the picture.  They all seemed quite straightforward.  If the defence witnesses are telling the truth, as I am satisfied that they are on this point, there were negotiations between Mr Leung and some unknown person or persons named as Billion Motors Company for the lease of B4 as a car showroom.  These commenced on 7 December 2001 and continued thereafter.

43.  Mr Leung says that he was told that Ms Lam’s client wanted to use Best Time for the lease; and then he was told that the individual plaintiff would sign the Letter of Agreement meantime because the company’s documents were not ready.  That is what happened in fact, as may be seen from the documents mentioned above.  There is no dispute that the plaintiff intended to operate the car park as Best Time, and that Best Time’s name was put forward as the tenant to be named in the formal Tenancy Agreement.  Mr Leung says that he saw all this as part of the ongoing chain of negotiations leading to the formal Tenancy Agreement for B4 to be leased as a car showroom.

44.  It is also noted that Mr Ken Chan says that he drafted the Letter of Agreement and put in the use as “for the purpose of parking motor vehicles”.  He did not put down that the vehicles were there for exhibition purposes, because that was contrary to the Government lease conditions.  This, to me, rings true.  It is the sort of thing that happens commonly enough, though no doubt it is to be deplored.  One need only point as an example to the practice of “licence borrowing”, where a Government-approved contractor subcontracts Government work to an unapproved contractor.  This is by no means unknown to the courts.  In any event, as the plaintiff’s expert Mr Chan said, it is common practice in this sort of situation for the tenant to pay for, and the landlord to apply for a lease modification.

45.  It is suggested that the fact that the Deacons draft contains no reference to car exhibition, contrary to what Mr Chan says were the instructions he gave to that firm, casts doubt on his evidence.  I do not see that it does.  In any event this draft was not accepted by the defendant. 

46.  There is a dispute as to whether the plaintiff was sent a faxed draft identical to the Letter of Agreement in all save the name of the tenant.  Mr Ken Chan, who prepared the Letter of Agreement, says that he never prepared or sent such a draft.  Mr Claus Chan says that he did not see the plaintiff compare any draft with the Letter of Agreement at the meeting on 4 January 2002.

47.  According to the plaintiff he received this draft by fax from Ms Lam.  One asks rhetorically, if this is right, where is the document which was fed into the fax machine? All the other such documents that went through Ms Lam’s fax machine have been discovered.  On this point I prefer the evidence of the defence witnesses to that of the defendant. 

48.  There is a also dispute over the plaintiff’s request, at that meeting for 183 entry gate cards.  He says that he asked Claus Chan if he would be given 183 cars, and Mr Chan replied “Of course”.  Mr Claus Chan’s evidence is that, as far as he remembered, no mention of cards was made.

49.  Whatever the intended use of the car park, some cards would be needed.  According to Mr Leung, these were “smart cards”.  If a vehicle owner who rented by the month had paid the monthly charge, the Wilson employee would put in the information through the computer, and the customer could enter.  Mr Leung said that Ms Lam had asked him for 20 such cards, for cars to come in to be exhibited, and he had agreed to 10; this was agreed in a telephone conversation between 19 December 2001 and 4 January 2002.

50.  It is suggested that Claus Chan would have had difficulty in remembering this matter after 50 months.  Again we are handicapped by the absence of Ms Lam, but it seems to me that if there had been any discussion of cards, it would have taken more than a brief mention.  Originally there were to be 20; and on the plaintiff’s case there were now to be 183.  The cards would need to be issued and provided with identification e.g. by bar code.  Some procedure would have to be agreed on to make sure that payment information got to Wilson’s people so that the computer was updated, or the cards would not work.  Presumably one party or the other would have to pay for the issue of the cards.  All this would have to be arranged by 31 January or the customers would not be able to drive in on 1 February 2002. 

51.  It seems to me that if there had been such a mention, Mr Claus Chan would have remembered it, and some steps would have been taken thereafter to arrange for the issue of the cards.  I prefer his evidence to that of the plaintiff.

52.  It was suggested to Mr Leung that what really happened was that the defendant decided to lease B4 to the plaintiff to use as a car park; they made the wrong commercial decision; but later they tried to get out of it on the pretext that what was really intended was a lease of the floor as a car showroom.  The fact of the much more profitable lease of B5 shows, and showed to the defendant at the time, how wrong the decision was to lease B4 for $80,000 per month.

53.  The decision to lease was obviously commercially questionable in any event, because even the defendant had managed to let the 183 spaces for group parking of cars at $800 per car per month, it could have fetched parking fees of $146,400.  But I do not think the lease of B5 comes into the picture here because all the evidence points to its having been suggested by Mr Leung’s superior, only after the meeting on 23 January when Mr Leung told the plaintiff that the defendant would not go ahead with the lease.  I do not think that the inference contended for by the plaintiff can be drawn.

54.  In any event Mr Leung says that once he found out that the plaintiff was advertising parking spaces, he telephoned Ms Lam and asked what the plaintiff was doing, given that the understanding all along had been that he would lease B4 as a car park.  She said that she did not know, and agreed to set up a meeting.  At the meeting on 23 January there is no dispute that Mr Leung demanded why the plaintiff had advertised parking spaces, and said that he thought that the plaintiff was going to use B4 as a car showroom.  The plaintiff says that he spoke angrily.  It is not suggested that the anger was feigned as it must have been if Mr Leung was trying to get out of a bad commercial decision to rent B4 as a car park.

Findings

55.  I am satisfied that, all along, the defendant, through DCML, Mr Leung and the others, thought it was leasing B4 as a car showroom.  I do not believe there was ever any intention on their part to lease it to the plaintiff as a car park, for him to set up in competition to the defendant.  There is no evidence that Ms Lam told DCML that Billion Motors had pulled out, or that she had another possible tenant who wanted to lease B4, not as a car showroom but as a car park, and I do not believe that she can have done so.

56.  If the plaintiff is telling the truth, he was brought in by Ms Lam to lease B4 as a car park; he had no idea of any previous negotiations about a car showroom; and she never told him that as far as DCML’s people knew, they were in negotiations for leasing B4 as a car showroom.

57.  The plaintiff pleads in his Reply that the defendant knew all along that he was going to engage in car parking business.  The only way the defendant’s people could have known that was if Ms Lam told them.  There is no specific statement in evidence in chief that he told Ms Lam that that was what he wanted although that is the tenor of his evidence.  He does mention the point in his witness statement.  However in cross-examination it seems that he tried to evade the question of what discussions he had with Ms Lam particularly about the terms of the lease.

58.  If the plaintiff is telling the truth, he came to Ms Lam in all innocence, with the declared intention to lease B4 for car parking.  Ms Lam never told him that the defendant wanted to lease it as a car showroom.  If this is right, it means that Ms Lam, for some reason of her own, dishonestly and without the plaintiff’s knowledge presented him to DCML as a tenant who intended to use B4 as a car showroom, while knowing that he intended to use it as a car park.

59.  I cannot see why Ms Lam would do that.  Even if she expected commission, she would know that problems would arise as soon as the parties found out that they were at odds.  Both would blame her.  She would never see a penny of commission.  

60.  Even without the evidence of Ms Lam to contradict the plaintiff on this, I find it impossible to believe, given the connection that the plaintiff obviously had with the world of car sales in car parks, that he knew nothing about what had gone before.  It is much more probable that the plaintiff was the real car showroom tenant all along.  This is what the chain of events indicates. 

61.  On the other hand, if Billion Motors, whoever that was, pulled out, and the plaintiff came in its place, it seems to me that he must have known what the defendant’s intention was, but gone ahead with the agreement in the hope that, once it was in place, he would be able to put into practice his real intention to operate a car park. 

62.  I conclude that the agreement between the plaintiff and DCML for the defendant was really for a lease of B4 for use as a car showroom rather than a car park. 

Did the Letter of Agreement constitute a binding agreement on its face?

63.  The Letter of Agreement does not bear the words “subject to contract”, so on the face of it, it is intended to be a binding agreement. However, there is an express stipulation for the execution of a formal document, namely the Tenancy Agreement in the defendant’s standard form.  The editors of Hill & Redman’s Law of Landlord and Tenant discuss this at paragraph A [968] where they say:

“There may, however, be a binding contract between the parties notwithstanding the fact that the parties have expressly stipulated for the execution of a formal document incorporating the terms of their agreement.  It is a question of construction whether the execution of the further contract is a condition of or a 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 will go through.”

64.  Various cases have been cited in support of this proposition, but I need not go into them; I do not think there is any dispute that the proposition is correct.

65.  It is true that the Letter of Agreement appears to show that all the major terms of a proposed lease had been agreed, except perhaps that there was no proper provision as to how the option was to be exercised.  The plaintiff was asked about this in cross-examination, and it does not appear that the parties had given it any thought.

66.  However, on the face of the document, the Letter of Agreement is not a lease or an agreement for a lease; it is an offer setting out the terms which the landlord understands the tenant to agree, and asking for confirmation and payment of a holding deposit.  One of the terms is that there is to be a formal Tenancy Agreement, in the defendant’s standard form.  That is mandatory; the tenant “shall” sign.  It is true that the holding deposit is to become the first month’s rent if the formal Tenancy Agreement is signed, but it is to be forfeit if the Agreement is not signed.  The payment only becomes rent if the term as to the Tenancy Agreement is performed.

67.  On the evidence of Mr Leung, the formal Tenancy Agreement was important to the defendant.  That is why they wanted their own Letter of Agreement to be used, and why Mr Ken Chan undertook a drafting exercise.  The plaintiff also knew and accepted that there would be a formal Tenancy Agreement, although he says that he thought it was just something which had to be witnessed by a solicitor.  This formal Tenancy Agreement was to be in a standard form, not appended to the Letter of Agreement, so it might contain additional terms, and in fact the standard form tenancy agreement used by the defendant, as the basis for a draft by Deacons which the defendant later rejected, contains many other terms and conditions than those set out in the Letter of Agreement.  Presumably these could be the subject of further negotiation.

68.  Further, it is only on the signing of the formal Tenancy Agreement, or delivery of the premises, that the tenant expected to pay the security deposit of two month’s rent; a normal incident of tenancy.  There was some argument over the provision for determination by the landlord of “this tenancy” and forfeiture of the security deposit on the tenant’s failure to perform or comply with “the terms herein contained” but I do not think this can be read as making the terms in the Letter of Agreement finally binding.  There is nothing to forfeit until the security deposit is paid over, and that is to happen on the signing of the formal Tenancy Agreement, or entry, whichever comes first.  The fact that the Tenancy Agreement had to be signed within 14 days of presentation to the tenant, in the context the Letter of Agreement, shows that what the parties are aiming for is to have everything sorted out and the formal Tenancy Agreement signed before 1 February, 27 days later.  Obviously what is intended is that the security deposit may be forfeited in the case of failure to perform the terms of the formal Tenancy Agreement. 

69.  It seems to me therefore, that the Letter of Agreement does not on its face constitute a binding agreement for a lease.  That was to come later, in the form of the formal Tenancy Agreement to which the Letter of Agreement was subject.  This, I think, is right even if my factual findings above are wrong, and the parties really did both intend that B4 be leased as a car park.

Best Time

70.  Ms Lam’s first fax message on the morning of 4 January 2002 showed that her client wanted to use Best Time to be the tenant and her second message showed that her client, named as the plaintiff, would sign in his own name because the company’s papers were not ready.  Mr Leung says that he had no problem with that and agreed to it.  It was later agreed that the tenant to be named in the formal Tenancy Agreement would be Best Time.  The plaintiff on 10 January 2002 told Ms Lam this, she passed it on to DCML, and Mr Ken Chan passed it on to Deacons.  There is no dispute that the plaintiff intended all along that Best Time would be the tenant. 

71.  It is common enough for an individual to enter into a preliminary agreement for sale and purchase or for a lease in his own name, when the actual purchaser or lessor is to be a company which he controls.  In that case the preliminary contract normally provides for a further contract with or an assignment to a nominee.  A shareholder, even a controlling shareholder is not the company.  Such an agreement cannot, where both parties know that it is the company who is to take the lease, be taken as evincing an intention to create a lease as between the landlord and the shareholder.

72.  It seems to me, therefore, that the Letter of Agreement does not evince an intention on the plaintiff’s part to create a tenancy between himself and the defendant because what he intended was that Best Time was to be the tenant under the formal Tenancy Agreement.  Again this shows that what was intended was that the formal Tenancy Agreement, and not the Letter of Agreement, should bind the landlord and tenant. 

73.  As I have indicated, this was not pleaded, but I agree with Mr Li that if the Letter of Agreement was binding as a contract of lease between the parties, such contract was varied by agreement so that the tenant was to be Best Time and not the plaintiff.  The proper plaintiff is Best Time.  The plaintiff has no locus to sue.

Ongoing “subject to contract” negotiations

74.  The defendant argues that the Letter of Agreement is part of the ongoing chain of “subject to contract” correspondence which started on 7 December 2001.  In other words, did the negotiations stop being subject to contract, when the magic words no longer appeared on the correspondence?

75.  Once a “subject to contract” qualification is introduced into negotiations, it will only cease to apply if the parties expressly or by necessary implication agree that it should be expunged.  See Cohen v Nessdale Ltd [1982] 2 All ER, CA.

76.  The negotiations here started off as “subject to contract”.  It is true that after 14 December 2001 the words no longer appeared on the correspondence.  However, it is clear enough on the evidence that they went on thereafter, until the Letter of Agreement was signed on 4 January 2002.  There was nothing to indicate any express agreement that the qualification ceased to apply.  All along, the parties were moving towards a formal Tenancy Agreement.  Even if it could not be said that the reference to it did not of itself make the Letter of Agreement subject to the formal Tenancy Agreement, that reference itself would be sufficient to show that the qualification had not ceased to apply.  There is therefore nothing from which it could necessarily be implied that it had ceased to apply.

Agency of Ms Lam

77.  It is, I think, not really necessary to consider this.  The position is clear enough; there was no binding contract of lease between the plaintiff and the defendant even if they did both intend the lease of B4 as a car park.  Either could get out at will, before the formal Tenancy Agreement.  However for the sake of completeness I will briefly consider it.

78.  Whether an estate agent is an agent for the vendor or purchaser, or in this case the landlord and tenant, depends on the facts of each case: Cheng Kwok Fai v Mok Yiu Wah [1999] 2 HKLRD 440; Green Park Properties Ltd v Dorku Ltd [20000] 2 HKLRD 400.  The agent is a broker and may act for both.

79.  There is no doubt that Ms Lam acted for the defendant.  The plaintiff says that he told her that he would not pay commission.  Indeed he seemed very keen to make this point.  Nevertheless she held herself out as his agent in correspondence right up to 4 January 2002.  Although the plaintiff says that he negotiated directly with DCML the fact is that everything was still going through Ms Lam until the Letter of Agreement was signed.  She was at the meeting, and even in the picture later on when Mr Leung asked her to arrange the meeting which took place on 23 January 2001.  I am satisfied on the facts that she acted for the plaintiff as well as for the defendant. 

80.  I have found that the plaintiff must have known what the defendant’s intention was with regard to the use of B4.  Factually, he can only have known that from Ms Lam, unless of course he got it from Yeung, and set out to deceive Ms Lam as well as the defendant.  In any event, Ms Lam’s knowledge of the defendant’s conditions for the lease would be imputed to the plaintiff as her principal.  See Bowstead & Reynolds on Agency, 17^th Edition, p. 441 Paragraph 8-207.  It would follow that the plaintiff must have agreed, when he signed the Letter of Agreement, to those conditions, and that he breached it by advertising for monthly parking customers. The Defendant accepted the repudiatory breach.

Misrepresentation

81.  In view of my other findings, this point is pretty much academic.  However, I have no doubt that Ms Lam represented the plaintiff as a client who wanted to lease B4 as a car showroom.  I do not accept that she would have done so fraudulently, on her own initiative and without the plaintiff’s knowledge.  So, if the plaintiff was not the same tenant as had been negotiating all along, but came in when Billion Motors pulled out, she was either the innocent conduit for his misrepresentation or else she assisted him in it.  The defendant would not have agreed to lease B4 as a car park so it must have relied on such misrepresentation and was entitled to rescind when it found out that the plaintiff was advertising monthly parking.

Conclusion on liability

82.  The plaintiff has not established liability under the Letter of Agreement.

Quantum

83.  This is now academic.  I would, however, make the following comments. 

84.  In the first place, the plaintiff’s claim is based on loss of profit.  He pleads a net figure of  $5,755,200 over three years.  This is based on a high occupancy rate, gross income for the period of $9,475,200 and operating costs of $3,720,000.  Tax is not allowed for.

85.  The evidence of his expert, Mr Bernard Chan Kwok Fai, goes to the open market rental of B4 as at January 2002 and March 2003.  Leaving aside any question of whether it is to be accepted as correct, it is simply not relevant to the claim for loss of profits and does not assist.

86.  The plaintiff’s evidence of the profits he expected is based on his own informal calculations.  It is not supported by any more than what the plaintiff says is his own experience in operating car parks; these were, it appears, open-air “dirt parks” on building sites and the like, and nothing like B4.  There is nothing to support the occupancy estimates he gives and the figures seem unlikely, given that the defendant does not seem to have had, at the relevant time, a lot of success in renting out space even for group parking at $800 per space.  Nor is there anything in the way of documents to support the low operating costs which he pleads. 

87.  The plaintiff’s pleaded figures do not include set-up costs.  He accepts that there would be such costs and at the last minute put in his estimate, Exh. P2.  It provides for set-up costs of $19,980.  It also provides for extra expenses, on top of those pleaded.  The extra total including set-up costs over the three years is $143,580.  Again these figures are only the plaintiff’s own estimate.  There are no estimates from suppliers to show the cost of equipment required, or contractors or the like. 

88.  The defendant argues that, since the plaintiff is not an expert in this field and has not been called as such, his evidence, which is opinion evidence, should be disregarded.  This is excessively technical.  It would not be fair to say to a litigant that because he is not an expert, with the proper letters after his name, he cannot tell the court what he thinks his claim is worth and produce his own “cigarette packet” calculations in support.  This is particularly so where, as in the case of the plaintiff, he has some knowledge in the field, if not of precisely the same kind of business.  However, unless there is expert or factual support for the calculations, they cannot have much weight. 

89.  The defendant’s expert, Mr Vincent Au Kwok Chuen, has given a meticulously-prepared opinion which estimates the plaintiff’s profits over the three year lease period (if the option were exercised) at about half a million dollars.  He gives a figure of $5,989,680 for the gross profits.  He estimates set-up costs at $80,000 and operating costs (including amortisation of the set-up costs) at $5,454,432.

90.  I think that, if it were necessary to estimate quantum, Mr Au’s occupancy figures and estimate of gross profit would have to be preferred to those of the plaintiff, as they are based on comparables, and not guesswork.  So I would be inclined to accept his gross profit figures.  Such figures as might be worked out from Mr Chan’s opinion on the open market rental, based as they are on the B5 lease, are not of much assistance because the B5 lease was never for ordinary customers who wanted monthly parking; it was, even after the surrender and re-leasing, a motor trade operation. 

91.  However, I have some difficulty with Mr Au’s figures for set-up and running costs.  I cannot say they are wrong but they are clearly based on an ideal situation, where everything is ripped out and the car park is set up from scratch with new equipment, and then run without stinting on the number of employees and the other running costs.  To use a vehicular analogy, it would be the Rolls-Royce of car parks rather than the light goods van that the plaintiff seems to have had in mind.  There would be nothing to force the plaintiff, if he had been able to use B4 as a car park, to put in the kind of money Mr Au says was needed, either at start-up or over the period.  Having said that, the plaintiff’s costs figures, like most “cigarette packet” calculations, are probably tainted by wishful thinking.

92.  As I have indicated, this is all academic and, given that I am finding against the plaintiff on liability, I am not inclined to go into quantum in any detail.  It would be a waste of time and effort, unless I am found elsewhere to have been wrong.  In that event, some rough figures might assist.  If one took Mr Au’s gross income figure and, on a charitable basis, the plaintiff’s pleaded expenses figures plus those in Exhibit P2, that would produce a net figure around the $2 million mark over the three years.  That seems a more reasonable figure, if there had been a finding for the plaintiff on liability.

Result

93.  The plaintiff’s claim fails.  His action is dismissed with costs (nisi) to the defendant to be taxed if not agreed.