LO YUET WAH v. FAT YEARS LTD. t/a SUN SING RESTAURANT

IN THE COURT OF APPEAL

1994, No. 203
(Civil)

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J U D G M E N T

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Power, V.-P.:

1. In this action Madam Lo Yuet-wah, the plaintiff, sued Fat Years Ltd. trading as Sun Sing Restaurant ("Fat Years") for $38,800 being the amount of two cheques, each dated 22nd November 1992, in the sum of $36,000 and $2,800. The cheques were, upon presentation for payment on 3rd December 1992, dishonoured. It was common ground that Fat Years had given instructions to its bank not to honour the cheques.

2. The history of the matter begins on 22nd September 1987 when Mr. Yim Hon-sang, a tenant of the plaintiff, assigned to Fat Years ownership of its business, a restaurant operated upon the premises leased from the plaintiff situated at 108-109 San Hing Street, Cheung Chau. On that date Mr. Ko Yat Ming ("Mr. Ko"), a director of Fat Years signed a tenancy agreement ("the first agreement") which bore his name both as signatory and, on its face, as tenant. The agreement ran until 21st September 1995. Thereafter Mr. Ko and Madam Wong Lai-fun ("Madam Wong") operated the restaurant business.

3. On 22nd April 1990, another tenancy agreement ("the second agreement") was signed by Mr. Ko and the plaintiff. This related to additional space at 108-109 San Hing Street, for the operation of the restaurant. Again Mr. Ko was, on the face of the agreement, signing as the tenant. This agreement also expired on 21st September 1995.

4. On 7th November 1992, after some months of negotiation, a new tenancy agreement ("the third agreement") in respect of the whole area to which the first and second agreements related was signed by the plaintiff and Madam Wong. Madam Wong was the sole signatory and she also, on the face of the agreement, was the tenant of the premises. It seems that this new agreement was thought to be necessary because Mr. Ko had retired from the business on 21st July 1992. This third agreement was also to expire on 21st September 1995. This agreement provided for a rent of $36,000 per month for the first year, from 22nd September 1992 to 21st September 1993, and, depending upon who was believed at trial, for a rent of $39,000 or $49,000 per month thereafter. The agreement provided that the rent be paid in advance on the first day of each tenancy month. It appears that the rent for the months commencing 22nd September and 22nd October was paid on 7th November at the time of the signing of the agreement. As at 3rd December the rent for the month commencing 22nd November and the agreed licence fee of $2,800 was still owing.

5. The judge set out the evidence as to what occurred on that day as follows:

"The first two monthly rental payments of $36,000 each and the agreed 'licence holder fees' were paid to the plaintiff. On 3rd December 1992 the plaintiff went to the restaurant and was given the two cheques which are the subject matter of the plaintiff's claim by Madam Wong. There is no dispute that following Madam Wong handing over the cheques, the plaintiff gave her Exh.P5 which purported to be the new tenancy agreement signed by them on 2nd November 1992.

Madam Wong's evidence is that immediately after the plaintiff left the restaurant, she looked at the copy of Exh. P5 she had been given and saw that on the first page of the document it provided that the monthly rent during the second and third year of the agreement was to be $49,000. She said that in the document she had signed in November it had provided for a rent of $39,00 during those two years. Realizing what had occurred she immediately went next door to the branch of Citibank, the defendant's bank, and told them to stop the two cheque she had given to the plaintiff.

The plaintiff not surprisingly claims that the document Exh.P5 is what Madam Wong signed on 2nd November 1992."

The judge went on to make the following finding regarding Exh.5:

"I am satisfied that the agreement which the parties reached orally and then embodied in the document signed on 2nd November 1992 (sic) was for a rent of $36,000 per month during the first year and then $39,000 per month in the succeeding two years."

The plaintiff having sued on the cheques, Fat Years filed a defence and counterclaim. It was pleaded:

(i) that Fat Years was a party, as tenant, to all three agreements;

(ii) that during negotiations prior to the third agreement the plaintiff represented to Madam Wong that she would accept rent of $36,000 for the first year and $39,000 thereafter ("the said representations");

(iii) that Fat Years was induced by the said representations to enter into the third agreement and that on 2nd November 1992 it signed a tenancy agreement to that effect;

(iv) that Fat Years drew the two cheques pursuant to the agreement;

(v) that the said representations were false and fraudulent and that upon being given a concocted version of the agreement on 3rd December 1992, which stipulated a figure of $49,000 in place of the agreed figure of $39,000, Fat Years requested rectification which the plaintiff refused;

(vi) that Fat Years "countermanded payment of the said two cheques drawn in favour of the plaintiff and by a letter dated 23rd December 1992 sent by its solicitors to the plaintiff's solicitors rescinded the new tenancy agreement and determined the same";

(vii) that the third agreement was either not binding for lack of consideration or was invalid because the plaintiff was, being bound by the first and second agreements, "not entitled to enter into any subsequent agreement..........."

(viii) that there was, in the premises, a total failure of consideration for the two cheques.

Fat Years counterclaimed seeking a declaration that the third agreement had "been rescinded and determined and/or is invalid and that the first tenancy agreement and the second tenancy agreement are valid and subsisting". The plaintiff in reply denied that Fat Years was ever a tenant under the agreements and denied having made any false representations.

6. The trial judge was satisfied:

(i) that the plaintiff did hand over a concocted agreement on 3rd December and held that the agreement of 7th November 1992 in its original form was valid and binding;

(ii) that both Mr. Ko and Madam Wong had entered into the agreement on which their name appeared on the basis that they were "personally liable to perform them as well as (their) principal the defendant company";

(iii) that there was consideration for the third tenancy agreement passing from the plaintiff. He rejected a "tentative" argument that the third agreement had been procured by duress;

(iv) that there was no evidence to establish that the third agreement was induced by any false representation.

7. There is no cross appeal against any of these findings.The trial judge also dealt with the "alternative defence suggested by Mr. P.H. Wong (who also appears before this court) to the plaintiff's claim on the cheque ...... that they were handed over to the plaintiff on 3/12/92 as a result of an implied representation by the plaintiff that '$39,000 for the second and third years was acceptable'." He set out the argument advanced by Mr. Wong as follows:

"An alternative defence suggested by Mr. Wong to the Plaintiff's claim on the cheques is that they were handed over to the Plaintiff on

3-12-92 as a result of an implied representation by the Plaintiff that '$39,000 for the 2nd and 3rd years was acceptable'.

On the evidence no express representation of any sort was made by the Plaintiff on 3-12-92 prior to receiving the two cheques. Mr. Wong argues however that there was a continuing representation from the time of the signing of the new tenancy agreement on 2-11-92 that $39,000 would be acceptable for the 2nd and 3rd years was acceptable. He says that since at the time she accepted the cheques Madam Lo (the Plaintiff) was in possession of Exhibit P5 (containing the substituted page one) and it is obvious she did not intend to accept $39,000 for the last two years of the agreement she obtained those cheques by misrepresentation.

Mr. Leung, with some justification, argues that this alleged continuing representation was not pleaded.

In any event I do not find that the cheques were handed over on 3-12-92 as a result of any such implied representation by the Plaintiff. The cheques for $36,000 and $2,800 were handed over on 3-12-92 because that was part of the agreement reached between Madam Wong and the Plaintiff on 2-11-92. Although Madam Wong might have refused to hand over the cheques if she had known that the Plaintiff had it in mind to attempt to defraud her in the future in relation to the rent payable for the 2nd and 3rd years that does not mean that Madam Wong handed over the cheques because of a representation of the type alleged by Mr. Wong I find therefore that this defence fails."

8. Fat Years in its Notice of Appeal seeks orders that:

(1) the oral agreement (the third agreement) has been rescinded and determined and/or is invalid;

(2) the cheques are not enforceable either for lack of consideration or because they were obtained by misrepresentation;

(3) the first and second agreements had not been rescinded by consent;

(4) the plaintiff pay the costs of the appeal and below.

9. It was Fat Year's case below, and as set out in its Notice of Appeal, that the third agreement because of the fraudulent misrepresentation of the plaintiff was invalid, i.e. never came into existence. It was an alternative submission that the third agreement was, by virtue of the misrepresentation, voidable and that Fat Years had, when it became aware of the misrepresentation, sent a letter which voided it effecting a rescission ab initio. These contentions are covered by Ground 1. It was further contended (Ground 3) that, whichever alternative applied, the first two agreements remained binding.

10. There was finally a parallel submission (Ground 2) in which it was argued that there was no consideration for the cheques because they were obtained by a fraudulent misrepresentation which, although originally made prior to the signing of the third agreement, was a continuing one, which was operative at the time when they were handed over.

11. The thrust of the defence, as argued before the judge, was that at the time of the signing of the third tenancy agreement the plaintiff had made a false and fraudulent misrepresentation which induced Fat Years to enter into that agreement. This argument sought to resurrect the first and second agreements by establishing that the third agreement was either void or that it had been voided.

12. In an alternative argument, which the plaintiff contended should not be entertained because it had not been specifically pleaded, it was submitted that the plaintiff's conduct in concocting the agreement and coming, on 3rd December 1992, to collect the rent amounted to an implied representation that she would be bound by the terms of the third agreement when she had, in fact, no intention of being so bound. It was submitted that, having obtained the cheques by such a misrepresentation, she could not succeed in her action to recover the amount thereof. Other approaches were urged for the consideration of the trial judge but reliance was placed principally upon the above and remains so placed in this appeal.

13. I find myself unpersuaded, as was the trial judge, that there was any implied representation at the time when the cheques were handed over.. The evidence does not show that the plaintiff either said or did anything beyond indicating that she had come to collect the rent owing under the agreement. Madam Wong paid that rent and up to that point there was, as the judge found, nothing more than the payment of an agreed rent. The judge was entitled to hold, as he did, that there was no misrepresentation either at the time of the signing of the third agreement or thereafter. The appeal must fail insofar as it relies upon such a misrepresentation. Mr. Wong goes on however to argue that the third agreement has been "rescinded".

14. On 3rd December 1992 after the cheques were given by Madam Wong to the plaintiff the plaintiff handed Madam Wong the concocted agreement. It was pleaded below and in the grounds of appeal that the third agreement was, by reason of the letter of 23rd December 1992, "rescinded". Before us Mr. Wong now contends that, at least as an alternative, he has always been relying upon a repudiation of the third agreement by the plaintiff, which, he argues, took place when the plaintiff handed over the concocted agreement, and an acceptance of that repudiation by Fat Years when, though its solicitors, it sent the letter of 23rd December 1992 to the plaintiff.

15. I am satisfied that Mr. Wong cannot on appeal be allowed to rely upon an accepted repudiation unless it can be demonstrated that it was pleaded and relied upon in the court below. Mr. Wong submits that it was. He refers to paragraph 9 of the Defence which states:

"9. In the premises the Defendant countermanded payment of the said two cheques drawn in favour of the Plaintiff and by a letter dated 23rd December 1992 sent by its solicitors to the Plaintiff's solicitors rescinded the new tenancy agreement and determined the same."

Mr. Wong further submits that he has pursued this point in his grounds of appeal. He refers to Ground 2(1)(a) of the Grounds which states that "by a letter dated 23 December 1992 the said oral agreement had been rescinded by the Defendant as a consequence of the Plaintiff's fraud."

16. The letter of 23rd December from Fat Years' solicitors to the Plaintiff's solicitors stated:

"By virtue of the fraudulent misrepresentation by your client which induced our client to enter into the said tenancy our client is entitled to rescind it. Our client hereby gives notice to your client that the said tenancy is now rescinded and demand the return of the rental for the period from 22nd September 1992 to 21st November 1992 being a sum of HK$72,000.00 and the licence holder fee of HK$5,600.00. Our client also reserve the right to claim damages against your client for fraudulent misrepresentation. In response to your assertion of part performance of the said tenancy by our client, we wish to point out that our client, in good faith and without knowing that there had been fraudulent misrepresentation until she was shown a photostatic copy of the signed Chinese Agreement on or about 3rd December 1992, paid to your client the rental for the period from 22nd September 1992 to 21st November 1992 at the rate of HK$36,000.00 per month and the licence holder fee of HK$2,800.00 per month pursuant to the said tenancy. Such alleged part performance, however, presents no bar to our client exercising the right of rescission in the present case where there had been fraudulent misrepresentation on the part of your client." (Emphasis supplied.)

17. In my view this passage gives no support to the submission that an accepted repudiation was pleaded and relied upon. This letter foreshadows the pleadings which allege a false and fraudulent misrepresentation made prior to 22nd September 1992 which induced Fat Years to enter into the agreement and which had the effect either of rendering the agreement void ab initio or of giving Fat Years, when it learnt of the misrepresentation, the right to "rescind" the agreement. It was then pleaded that it did so by the letter of 23rd December 1992 and that this effected a rescission ab initio and resurrected the first and second tenancy agreements. This is starkly different from the approach which Mr. Wong now wishes to adopt which, in effect, accepts the finding of the judge as to the binding effect of the third agreement and relies not upon an initial or a continuing misrepresentation which either voided that agreement or rendered it voidable but upon a repudiation on 3rd December which was accepted on 23rd December.

18. The "rescission" referred to in paragraph 9 of the Defence and Ground 2(1)(a) of the Grounds of Appeal was grounded upon an alleged fraudulent misrepresentation. It placed no reliance upon an accepted repudiation.

19. I am satisfied further, from reading the judgment, that, in the lower court, Mr. Wong at no time put his case in the way in which he now seeks to argue it. Never having pleaded this matter or argued it below he cannot now be heard thereon before this court.

20. There remains only the appeal against the order of the trial judge that each party pay its own costs. I can see nothing which would warrant interference in the judge's discretion to make that order.

21. The appeal is dismissed.

Godfrey, J.A. :

22. I agree. The correct analysis of what happened here seems to me to be as follows.

(1) The agreements referred to by Power, V.P. as "the first agreement" and "the second agreement" were superseded by "the third agreement", made on 7 November 1992.

(2) The third agreement reserved to the landlord a rent of $36,000 per month for the first year, commencing on 22 September 1992.

(3) The cheques given to the landlord on 3 December 1992 represented the rent of $36,000 due on 22 November 1992 and the outstanding "licence fee" of $2,800.

(4) These sums were due and owing to the landlord on 3 December 1992 and the cheques were given to the landlord in discharge of that liability.

(5) The landlord's right to these sums was in no way affected by her subsequent action, in an attempt to extort a higher rent, in putting forward, as the agreement made on 7 November 1992, a document which was not that agreement at all. When the landlord put forward this document, dishonestly representing it to be the true document, this was the first time that she made any representation about it; but by then she had already received the cheques. She did not therefore, receive the cheques on the faith of any representation, false or otherwise, which she had made previously.

(6) Whether, as a result of the dishonest conduct of the landlord in putting forward this document as the true agreement, the tenant became entitled to rescind the tenancy agreement, or treat it as having been repudiated by the landlord, is not a matter which falls to be considered in this action on the two cheques. But, in any case, as to rescission, the plea is misconceived. It is founded on a fraudulent representation inducing the tenant to enter into the third agreement, whereas in fact any such representation (if made at all) was not made until after the tenant had entered into the third agreement. And, as to repudiation, no such case was ever pleaded or proved, and the suggestion that the dishonest conduct of the landlord constituted a repudiation of the third agreement which the tenant was entitled to and did accept is not one which we can entertain in this court.

23. Accordingly, we must dismiss this appeal.

Mortimer, J.A.:

24. I have had the advantage of reading the judgments given by Power V.-P. and Godfrey J.A. for the reasons they have advanced, I agree that this appeal should be dismissed and I would not interfere with the judge's discretion when he ordered each party to pay its own costs.

Power, V.-P.:

25. I would order nisi that the appellant should pay the costs of this appeal.