WIN GLORIES LTD v. MAJORLUCK LTD

LDPE 824/2017

[2018]HKLdT24

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO LDPE 824 OF 2017

________________

________________

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DECISION
(APPLICATION FOR LEAVE TO APPEAL)

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Background

1.  This is an interlocutory application taken out by the respondent on 15 December 2017 by its former solicitors, seeking leave to appeal against my judgment handed down on 17 November 2017 (“the Judgment”), determining inter alia, “joint charges” as stated in Clause 3 in Section II of a Tenancy Agreement dated 9 March 2016 (hereinafter referred to as “Clause 3” and “the Tenancy Agreement” as the case may be) in respect of Market on the Ground Floor of Commercial/Car Park Block (also known as Kam Ying Shopping Centre), Kam Ying Court, 9 Kam Ying Road, Shatin, New Territories, Hong Kong (“the Premises”) may comprise management charges which include, inter alia, the Manager’s staff costs, cleaning charges, maintenance and repair costs, gardening and decoration costs etc as per the Expense Statement from Guardian Property Management Limited. As a result thereof, I ordered the respondent do deliver vacant possession of the Premises to the applicant subject to relief.

2.  In the interlocutory application for leave to appeal, the respondent seeks to set aside the Judgment and have the application for recovery of possession of the Premises on the ground of nonpayment of joint charges been dismissed with costs.

Grounds of Appeal

3.  In support of the interlocutory application for leave to appeal, the respondent initially provided various grounds as set out in its draft Notice of Appeal filed herein on 14 December 2017 (“the Draft Notice of Appeal”). Following its change of solicitors, the respondent submitted a revised Draft Notice of Appeal filed herein on 19 March 2018 (“the Revised Notice of Appeal”). Unless otherwise expressly referred thereto, I shall only focus on the grounds of appeal as stated in the Revised Notice of Appeal which can be summarized as follows:

(1)   I erred in law in deciding that the ejusdem generis rule could not apply in the construction of the words “joint charges” in Clause 3 for want of a common category (“Ground 1”);

(2)   I erred in finding that there was no uncertainty of wording in Clause 3 for the contra proferentem rule to apply;

(3)   I failed to consider or sufficiently consider the effect of other clauses in the Tenancy Agreement, including Clause 35 of Section II, Clause 19(d)(ix) and Clause 19(d)(x) of Section IV, Clause 1(a)(i) of Section VI, the letting area of 7,638 sq ft is cut down to 4,678 sq ft under Part II of the First Schedule, the floor plan of the Tenancy Agreement, the implication of the Fresh Market Standard Operation Guidelines, the Deed of Mutual Covenant and other comparable tenancy agreements etc; and

(4)   I erred in failing to evaluate whether the applicant had discharged its burden of proof to explain and establish the fair portion of the joint charges and passed the blame onto the respondent in accusing him of turning a blind eye.

The Ejusdem Generis Rule

4.  Clause 3 which is under consideration states the respondent has to:

“pay all existing and future water, rates, electricity, telephone, gas and other utility charges payable in respect of the Premises and all charges for meters and all standing charges and deposits, and a fair proportion of any joint charges as determined by the Landlord or the manager for the time being of the Building or such part thereof as shall be owned by the Landlord (the “Manager”)”

5.  As regards Ground (1) above, at §16 of the Judgment, I have referred to §13-091 of Chitty on Contract which sounds out a limitation in the application of the ejusdem generis rule: “The ejusdem generis principle cannot, however, be applied unless there is a class to which the general words can be restricted. Therefore, where the matter specifically referred to are so various that they fall into no common category the meaning of subsequent general words is not limited by relation to them. ...”.

6.  In §1.3 of the Revised Notice of Appeal, Mr Thomas Lai (“Mr Lai”), counsel for the respondent, submitted the wordings of Clause 3 are not “so various that they fall into no common category.”  In reply in the hearing, Mr Yau Kwok Fai (“Mr Yau”), a director of the applicant attending on the latter’s behalf, immediately pointed out that “rates” and “all standing charges” (which are stated in addition and apart from “all charges for meters”) do not fall into a common category as utility charges.

7.  I agree with Mr Yau. Also it is also manifest that the first part of Clause 3 relates to the utility charges etc. only “payable in respect of the Premises” but the later part of Clause 3, or more particularly “a fair proportion of any joint charges as determined by the Landlord or the manager for the time being of the Building” refers to charges something different that relates to the shopping centre as a whole. See also §18 of the Judgment.

8.  To the extent that the respondent argues that “joint charges” mean only charges for any joint or shared meters that the tenant may share with the landlord, it is noted that such word “meters” has been omitted or not found in “a fair proportion of any joint charges as determined by the Landlord or the manager ….” In this regard, the further referral to Paragraph B.1 in Part 2 of the Fresh Market Standard Operation Guidelines by the respondent serves no assistance as this paragraph specifically discusses the installation of a separate meter, if one is necessary and then “the parties involved shall reach an agreement on the sharing of related costs.” This latter is completely different from that “a fair proportion of any joint charges” would be “determined by the Landlord or the manager” under Clause 3; obviously, the two provisions are talking about different items. See again §26 of the Judgment.

The Contra Proferentem Rule

9.  As I stated at §16 of the Judgment, I do appreciate that the principles in interpretation of a contract for instance as affirmed by Lord Hoffmann sitting as a Non Permanent Judge of the Hong Kong Court of Final Appeal in Jumbo King Ltd v Faithful Properties Ltd &Others (1999) 2 HKCFAR 279 is applicable. It is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.  It is not the same as interpretation of the meaning of the words used in the contract or the meaning of a particular provision.  The document must be read and construed as a whole. 

10.  Thus, despite the inadequacy of the language used there is no doubt as to what “joint charges” means. §§22-23 of the Judgment are repeated herein as follows:

“22.  As submitted by Mr Yau Kwok Fai (“Mr Yau”), a director of the applicant, the Premises were let “TOGETHER with the use in common with the Landlord and all others having the like right of the entrances, staircases, landings, passages and lavatories in the Building in so far as the same are necessary for the proper use and enjoyment of the Premises …” The Premises are not in isolation and a reasonable person would have understood that certain “joint charges” would necessarily be incurred by the Manager. At trial Ms Tse cannot deny that the respondent would stand to benefit from the services of the Manager.

23.  A fortiori, there are indeed “common passages” etc. inside the Premises reserved by the Landlord by reference to the description of the Premises at §6 above. See also the Layout Plan of the Premises at Annex I of the Tenancy Agreement.”

11.  In the hearing, Mr Yau again emphasized that the Premises are not standing alone or “self-contained”[1] as suggested by the respondent. The Premises are part and parcel of the Commercial/Car Park Block (also known as Kam Ying Shopping Centre) where the applicant or the Manager has to provide fire security equipment/services, lift services and other day-to-day communal services, management or security services etc. that are jointly shared by the respondent with the applicant.

12.  As regards the application of the contra proferentem rule, the Draft Notice of Appeal cited Gilje v Charlgrove Securities Ltd [2002] L&TR 33. In that case, the landlord made arrangement with the caretaker so as to enable him to recover a rent for the caretaker's flat through the service charge to the tenants in respect of the notional cost to the landlord of providing accommodation to the caretaker. The English Court of Appeal ruled that a reasonable tenant or prospective tenant, reading the underlease which was proffered to him, would not perceive that the lease obliged him to contribute to the notional cost to the landlord of providing the caretaker's flat. In the present case, I am of the opinion that the term “joint charges” by reference to the “matrix of facts” should be reasonably expected by the respondent as tenant. I find no uncertainty in the term “joint charges” and therefore the contra proferentem rule is not applicable. See §21 of the Judgment.

13.  The Draft Notice of Appeal also cited Philips v Francis [2015] 1 WLR 741 at §74 to argue on the principle that “if the parties to a lease intend that the lessor shall be entitled to receive payment from the tenant in addition to the rent, that obligation and its extent will be clearly spelled out in the lease.” The sentence that followed states also, however, “(i)t is to be expected that the tenant will wish to be fully aware of any such additional obligation on which his or her continuing right to possess the land and to occupy it may depend.” But in the present case, the respondent’s liability has been spelled out in Clause 3 though the consequence might be very hard to them when “a fair proportion of any joint charges” shall be “determined by the Landlord or the manager for the time being of the Building or such part thereof as shall be owned by the Landlord.” As stated in §38 of the Judgment, in Arnold v Britton [2015] AC 1619 at §§19 – 20, Lord Neuberger (providing the leading judgment in this case) held that “The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made.” Further, “a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight.”

14.  In Philips v Francis, the lessors claimed service charge for two periods in 2008 and 2009 as wages paid to them by a management company wholly owned and controlled by them and a 5% management charge. It was therefore objectionable for the lessors to be able to make a double recovery for the same management service by incorporating themselves or using their wholly-owned company to carry out the management of the estate for them. In contrast this is not the case here when the respondent only has to bear “a fair proportion of any joint charges as determined by the Landlord or the manager for the time being of the Building.” There is no question of double recovery in the present case.

15.  I have explained in §§27-39 of the Judgment why I came to the conclusion that “joint charges” may comprise management charges which include, inter alia, the Manager’s staff costs, cleaning charges, maintenance and repair costs, gardening and decoration costs etc as per the Expense Statement from Guardian Property Management Limited.

Other Clauses in the Tenancy Agreement

16.  At §3.1.1 of the Revised Notice of Appeal, Mr Lai referred to Clause 35 of Section II by which the respondent has to set up a guarantee fund for 3 months’ basic salary of staff for the operation and management of the Premises as determined by the Landlord to ensure continuity and control of the Premises in the event of premature termination of the Tenancy Agreement. I cannot see how this clause can be related to the payment of joint charges. This guarantee fund is merely related to the operation and management of the Premises as a traditional market, ie a business operation[2]. Again, “(t)he Premises are not in isolation and a reasonable person would have understood that certain “joint charges” would necessarily be incurred by the Manager.”

17.  At §3.1.2 of the Revised Notice of Appeal, Mr Lai referred to Clause 19(d)(ix) of Section IV which imposes limits on the maximum sums the respondent can charge the sub-licence stalls. Again, I cannot see how this clause can be related to the payment of joint charges by the respondent as tenant to the applicant.

18.  At §3.1.3 of the Revised Notice of Appeal, Mr Lai referred to Clause 19(d)(x) of Section IV which regulates the maximum interest on arrears of “licence fees, air-conditioning charges (if any), rates or management fees” by “not exceeding the rate of interest payable by the Tenant to the Landlord as specified in Clause 2 of Section VI of this Agreement.” Mr Lai submitted that Clause 2 of Section VI uses the words “the Rent, rates and other monies due” instead of “licence fees, air-conditioning charges (if any), rates or management fees” and therefore no management fees should be payable by the respondent to the applicant. I see no logic in this argument by Mr Lai and in my opinion, such argument should work otherwise because this tends to suggest that there would be other monies due apart from management fees per se – they are “all charges for meters and all standing charges and deposits, and a fair proportion of any joint charges” under Clause 3.

19.  At §3.1.4 of the Revised Notice of Appeal, Mr Lai referred to Clause 1(a)(i) of Section VI which states in the event of the Tenant failing to pay rent and rates, the Landlord may re-enter the Premises – this sub-clause does not mention management fees because there is none. This logic must be wrong as well as this sub-clause also does not mention the utility charges; does it mean that the respondent as Tenant is not required to pay utility charges?

20.  Another good example to refute this logic can be seen from section 21F of the High Court Ordinance, Cap 4 and section 58 of the

Conveyancing and Property Ordinance, Cap 219. In the former, relief against forfeiture is only granted for non-payment of rent and in the latter, subsection (10) makes an exception to the law relating to re-entry or forfeiture or relief in case of non-payment of rent. Thus, it is trite in law or in common usage, the payment or non-payment of rent tends to attract different treatment but it does not suggest, as by Mr Lai, that no other monies including management charges or joint charges are payable.

21.  At §3.1.5 of the Revised Notice of Appeal, Mr Lai referred to the description of the Premises under Part II of the First Schedule where the letting area (the total internal floor area) of 7,638 sq ft is cut down to usable stall licensing of only 4,678 sq ft to leave room for common passages, refuse rooms, water closets, store rooms and other service rooms. Mr Lai argues that this is another indication of intention and agreement that the wet market, ie the Premises is unique with its own common parts carved out of the tenant’s leased property and wholly paid for by the tenant, wholly outside the regime of the building’s common parts and the payment of management fees etc. With respect, Mr Lai fails to appreciate that “(t)he Premises are part and parcel of the Commercial/Car Park Block (also known as Kam Ying Shopping Centre where the applicant or the Manager has to provide fire security equipment/services, lift services and other communal services, management or security services etc that are jointly shared by the respondent with the applicant.” See §§10-11 above.

22.  Then at §3.1.6 of the Revised Notice of Appeal, Mr Lai referred to the floor plan of the Tenancy Agreement which shows the wet market ie the Premises has its own internal toilets and corridors with direct access to the open street, and that the building’s lift lobby, lift, staircases, store rooms and other common parts are all irrelevant to the market and segregated by partition walls. While I shall abide by my comments in the paragraph above, I would add that if Mr Lai’s argument is correct all large space users inside a commercial shopping centre such as department stores or restaurants which have their own internal toilets and corridors with direct access to the open street would not be liable to pay management fees/charges. With respect, such argument is against common sense and defies normal commercial practices.

23.  At §3.1.7 of the Revised Notice of Appeal, Mr Lai referred to the Fresh Market Standard Operation Guidelines where the respondent has to observe by virtue of Clause 38 of Section II of the Tenancy Agreement. Mr Lai suggests that the respondent is already subject to tremendous expenses in running the wet market and it would be inequitable to exact duplicate payment of management fees from him for common areas which he does not tread, for common facilities like lifts and staircases which he does not use, and for lighting and maintenance of common parts which he does not need or enjoy. In this regard, my comments in §§10-11 above are applicable. Again, the running of a business operation inside a commercial shopping centre, say the wet market for the captioned instance, would not absolve the operator from paying the management charges or in the present case joint charges as the case may be. “At trial Ms Tse (for the respondent0 cannot deny that the respondent would stand to benefit from the services of the Manager.”

24.  At §3.1.8 of the Revised Notice of Appeal, Mr Lai referred to the Deed of Mutual Covenant which demarcates the right and obligation between the Hong Kong Housing Authority and the Link Properties Limited, the predecessor in title of the Building, ie the Commercial/Car Park Block (also known as Kam Ying Shopping Centre) between the different portions of Shatin Town Lot 305RP saying that there is no provision for appointment of estate managers, no covenant for any contribution to management fees, nor identification of any common parts. I immediately questioned Mr Lai how the Deed of Mutual Covenant can be relevant when the Commercial/Car Park Block (also known as Kam Ying Shopping Centre) stands independently on its own lot as identified on the Estate Plan. I drew Mr Lai’s attention to the comparison with any commercial building wholly owned by a single owner who can then let out parts or portions of the building to various tenants, designating any remaining parts or portions of the building as common parts and charging management fees or service charges whatever they are called without any restriction or governing by a deed of mutual covenant. Mr Lai could give no answer but to agree with my analogy.

Other Tenancy Agreements in the Building

25.  At §3.1.5 of the Revised Notice of Appeal as stated above, Mr Lai argued that the Premises as a wet market is unique and he later submitted that the requirement to comply with the Fresh Market Standard Operation Guidelines does not appear in any other lettings in the Commercial/Car Park Block, demonstrating that “the ground floor open wet market is a wholly different regime.” Yet Mr Lai tried to make reference to the tenancy agreements in the other lettings so as to make a comparison that “Management Charge” appearing in these tenancy agreements does not appear in the Tenancy Agreement, ie the subject agreement for letting of the Premises. Mr Lai also argued that the wordings “… a fair proportion of any joint charges as determined by the landlord or the manager” appear under different heading – utilities in these other tenancy agreements.

26.  Firstly, I find Mr Lai is contradicting himself when on the one hand he accepts the Premises is unique in the Commercial/Car Park Block and on the other hand, he argues similar wordings appearing in other lettings of the standard shops under different context are useful for comparison.

27.  Once again, it would be useful to quote the following principles of construction as summarized by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912 – 913:

“The principles may be summarized as follows.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact,’ but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749.

(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judgesto attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201:

‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’”

28.  I consider the meaning of the wordings in the Tenancy Agreement should be read in its context and the reference to other tenancy agreements in respect of other lettings under different factual matrix though in the same shopping centre serves no useful purpose for interpretation of the meaning of the wordings. In any event, the definitions of “Management Charge” and “Utilities” that appear in these other lettings are not found in the Tenancy Agreement. If Mr Lai’s reasoning is correct, not only “management charge” is not payable by the respondent, but also “utilities” are not payable as well. But instead of having “Management charge” and “Utilities” payable under the Tenancy Agreement, the latter requires the respondent to pay “Charges’ under Clause 3. In my opinion, Clause 3 is a comprehensive payment clause that embodies utilities, rates (as pointed by Mr Yau), all standing charges (again not found anywhere in in the other lettings) and joint charges which may include management charges comprising, inter alia, the Manager’s staff costs, cleaning charges, maintenance and repair costs, gardening and decoration costs etc as per the Expense Statement from Guardian Property Management Limited. See also §§36-39 of the Judgment.

The Question of Fair Proportion

29.  Mr Lai then submitted that there should be a burden of proof on the applicant to explain and establish the fair portion attributable to the respondent. Here I find no such burden either expressed or implied from the Tenancy Agreement. Again I drew Mr Lai’ attention to the commercial practice of the real world where landlords of single owned premises would always reserve their right to charge or review the management charges/ service charges from time to time at the own discretion without any obligation to explain and establish to the satisfaction of the tenants. Mr Lai agreed. Indeed, in the definition of “Management Charge” in those other lettings cited by him, the “Management Charge” “shall be subject to review from time to time by the Landlord or the Manager whose decision shall be conclusive and binding on the Tenants.”

30.  In the above regard, to the extent that Mr Lai tries to compare the unit management charge payable under those lettings which were granted in April 2014 or November 2015 etc with the level of charges being demanded by the applicant in June 2016, he is not comparing like with like; the management charge being payable under those lettings might have been revised accordingly during the period.

31.  Secondly, even if the level of joint charge being sought by the applicant appears to be high, it is neither here or there so long if it appears to be a fair proportion. In the first hearing on 4 September 2017 when both parties then were not legally represented, I have already drawn the respondent’s attention to the ruling in Arnold v Britton [2015] AC 1619 in which Lord Neuberger emphasized seven factors at pp 1628B – 1629F, §§16 – 23.For the present purpose, it is useful to recite the first six factors:

“17. First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook [2009] AC 1101, paras 16–26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focusing on the issue covered by the provision when agreeing the wording of that provision.

18. Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve.

19. The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. Judicial observations such as those of Lord Reid in Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, 251 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, 201, quoted by Lord Carnwath JSC at para 110, have to be read and applied bearing that important point in mind.

20. Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill‑advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract, a judge should avoid re‑writing it in an attempt to assist an unwise party or to penalise an astute party.

21. The fifth point concerns the facts known to the parties. When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties.

22. Sixthly, in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract.  In such a case, if it is clear what the parties would have intended, the court will give effect to that intention.  An example of such a case is Aberdeen City Council v Stewart Milne Group Ltd 2012 SC (UKSC) 240, where the court concluded that ‘any … approach’ other than that which was adopted ‘would defeat the parties’ clear objectives’, but the conclusion was based on what the parties ‘had in mind when they entered into’ the contract (see paras 17 and 22).”

32.  For instance, by the third point above, “(t)he mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language” and by the fourth point, “a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight.” Therefore, as stated at §43 of the Judgment, “(i)f the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other.” I agree that the Joint Charges as claimed by the applicant against the respondent a fair proportion.”

Leave to Appeal

33.  Section 11AA (6) of the Lands Tribunal Ordinance provides that:

“Leave to appeal shall not be granted unless the Tribunal, the Court of Appeal or the registrar hearing the application for leave is satisfied that –

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

34.  After considering what the respondent presented in its affirmation supporting its interlocutory application, and after hearing what the respondent supplemented in his oral evidence and submissions, I consider those arguments by the respondent had been dealt with in the Judgment. I decide that the respondent’s appeal has no reasonable prospect of success, and the respondent failed to satisfy that there is some other reason “in the interests of justice” why the appeal should be heard.

Costs

35.  As the applicant does not ask for costs, there be no order as to costs.

LDPE 824/2017

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 824 OF 2017

_________________

_________________

______________________

J U D G M E N T

______________________

Background

1.  Notwithstanding that the hearing was conducted in Chinese and that the submissions by the parties are also in Chinese, I prefer to hand down this judgment in English because most of the important documents in the proceedings relied on by the parties and the legal authorities referred to by the respondent are in English.

2.  The applicant is the owner of Market on Ground Floor of Commercial/Car park Block (also known as Kam Ying Shopping Centre), Kam Ying Court, 9 Kam Ying Road, Shatin, New Territories, Hong Kong (“the Premises”).

3.  The Premises comprise one of the retail and carpark properties developed by the Hong Kong Housing Authority in conjunction with the public housing estates in Hong Kong. In April 2006, the Premises, among other similar retail and carpark properties, were assigned to Link Properties Limited (formerly known as The Link Properties Limited) for the floatation of the first real estate investment trust in Hong Kong, the Link REIT.  

4.  By a tenancy agreement dated 9 March 2016 (“the Tenancy Agreement”), the Premises “TOGETHER with the use in common with the Landlord and all others having the like right of the entrances, staircases, landings, passages and lavatories in the Building in so far as the same are necessary for the proper use and enjoyment of the Premises …”[1] were leased to the respondent for a term of 6 years from 1 October 2015 to 30 September 2021.

5.  Unlike a normal letting, according to the Fourth Schedule to the Tenancy Agreement[2], the Premises shall be used for the operation of a traditional market (街市) under the trade name of “Ma On Terrance Market (馬鞍台街市)” with only the trades and professions or businesses set out in the Schedule.

6.  By the “Description of Premises” in Part II of First Schedule to the Tenancy Agreement[3]:

“2. Notwithstanding the total internal floor area stated in Paragraph 1 above (ie 7,638 square feet), the total designed internal floor area to be actually used by the Tenant as market stalls shall not exceed 4,678 square feet and this internal floor area shall not in any circumstances exceed 5,145 square feet in the event of modification of the layout of the market area … The rest of the area are to be reserved for use as common passages, refuse rooms, water closets, store rooms and any other service rooms as may be specified by the Landlord.” (emphasis added)

7.  The applicant purchased the Premises from Link Properties Limited in May 2016 and thereafter on 1 June 2016 appointed Guardian Property Management Limited (“the Manager”) for the management of Kam Ying Shopping Centre (“the Building”) of which the Premises form part.

8.  On 11 August 2017, the applicant applied to the Tribunal for recovery of possession of the Premises on the ground that the respondent has failed to pay their share of the joint charges in the sum of $351,762 (“the Joint Charges”) for the period from 1 June 2016 to 31 March 2017. It also sought to claim damages and interest, rates, future loss of rental, legal costs etc from the respondent[4].

9.  By the written submission dated 3 November 2017 filed by the property manager of the applicant, the joint charges payable by the respondent for the period from 1 June 2016 to 31 August 2017 has been revised to $543,839.23 (“the Joint Charges”).

10.  Nevertheless, on 18 August 2017, the respondent filed a Notice of Opposition in which it disagreed that the applicant had paid the Joint Charges on its behalf and therefore the respondent had no responsibility to reimburse it to the applicant. The respondent considered the Joint Charges as alleged by the applicant were in fact management fees which are not chargeable under the Tenancy Agreement.

The Joint Charges

11.  Apart from the provision for paying rent and rates, by Clause 3 of Section II of the Tenancy Agreement (“Clause 3”), the respondent has to:

“pay all existing and future water, rates, electricity, telephone, gas and other utility charges payable in respect of the Premises and all charges for meters and all standing charges and deposits, and a fair proportion of any joint charges as determined by the Landlord or the manager for the time being of the Building or such part thereof as shall be owned by the Landlord (the “Manager”)” (emphasis added)

12.  At the hearing, Ms Rita Tse (“Ms Tse”) of Messrs Tony Kan & Co, Solicitors who acts for the respondent confirmed that the respondent is not challenging its liability for paying the “joint charges” as reserved in the Tenancy Agreement. What the respondent disputing is the Joint Charges as alleged by the applicant were in fact management fees which are not chargeable under the Tenancy Agreement.

13.  In her submission dated 3 November 2017, Ms Tse raised 3 issues of dispute, namely:

(1) What is the meaning of “joint charges” in Clause 3?

(2) Whether the Joint Charges the applicant demanding from the respondent fall within the meaning of “joint charges” in Clause 3?

(3) If the question (2) above is answered in the affirmative, whether the Joint Charges are a fair proportion?

Applicable Legal Principles

14.  Ms Tse explained issues (1) and (2) would depend on the construction of contract in which regard she cited firstly the judgment of Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd & Others (1999) 2 HKCFAR 279 at 296D-I:

“… The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. … Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. ... But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”

15.  Then Ms Tse referred to Smart Essence Development Ltd v Hong Kong Housing Authority, HCA 450/2016 (unreported, dated 28 April 2016) where Deputy High Court Judge Paul Lam SC cited at §44 the principle enunciated in Jumbo King above and at §46 the seven factors of consideration pronounced by Lord Neuberger in Arnold v Britton [2015] AC 1619 at pp 1628B – 1629F, §§16 – 23. Ms Tse in particular emphasised the fifth factor as follows:

“The fifth point concerns the facts known to the parties. When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. ...”

Meaning of “joint charges”

16.  While I agree that the above principles are applicable, Ms Tse intended to apply the ejusdem generis rule which is explained in Chitty on Contract, 32^nd edition, Vol 1, §13-090 as follows:

“… where several words preceding a general word point to a confined meaning the general word shall not extend in its effect beyond subjects ejusdem generis (of the same class), applies in principle to the construction of contracts. The principle depends on the assumed intention of the framer of the instrument, i.e. that the general words were only intended to guard against some accidental omission in the objects of the kind mentioned and were not intended to extend to objects of a wholly different kind. Indeed, this principle follows as a corollary of the principle that the whole contract is to be considered, being simply that every word shall be taken in conjunction with the words that accompany it ...”

17.  Ms Tse submits that Clause 3 only refers to “existing and future water, rates, electricity, telephone, gas and other utility charges etc” and therefore cannot include and should be distinguished from the management charges imposed by the Manager, ie Guardian Property Management Limited after its appointment.

18.  I do not agree with Ms Tse because those utility charges etc refer only to those “payable in respect of the Premises” but there are charges that can be “determined by the Landlord or the manager for the time being of the Building or such part thereof as shall be owned by the Landlord.”

19.  I do not consider the “joint charges” can have such a confined meaning contended for by the respondent. In fact §13-091 of Chitty on Contract deals with such situation:

“The ejusdem generis principle cannot, however, be applied unless there is a class to which the general words can be restricted. Therefore, where the matter specifically referred to are so various that they fall into no common category the meaning of subsequent general words is not limited by relation to them. ...”

20.  Ms Tse emphasised that there is no definition for “joint charges” in the Tenancy Agreement and therefore the contra proferentem rule applies, citing Chitty on Contract, 32^nd edition, Vol 1, §15-012 which reads as follows:

“… as in the case of any other written document, in situations of ambiguity the words of the document are to be construed more strongly against the party who made the document and who now seeks to rely on them.”

21.  Again, in my view, there is no uncertainty in the term “joint charges” that brings into play the canons of construction on ambiguities.  The court will only resort to applying the contra proferentem rule if the meaning cannot be found using the general rules of interpretation by reference to “ordinary and natural meaning” of the words as they are written down – also a general approach to contractual interpretation that has been summarised by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwick Building Society [1998] 1 WLR 896. 

22.  As submitted by Mr Yau Kwok Fai (“Mr Yau”), a director of the applicant, the Premises were let “TOGETHER with the use in common with the Landlord and all others having the like right of the entrances, staircases, landings, passages and lavatories in the Building in so far as the same are necessary for the proper use and enjoyment of the Premises …” The Premises are not in isolation and a reasonable person would have understood that certain “joint charges” would necessarily be incurred by the Manager. At trial Ms Tse cannot deny that the respondent would stand to benefit from the services of the Manager.

23.  A fortiori, there are indeed “common passages” etc inside the Premises reserved by the Landlord by reference to the description of the Premises at §6 above. See also the Layout Plan of the Premises at Annex I of the Tenancy Agreement.

24.  In support of her argument that “joint charges” are confined to utility charges etc, however, Ms Tse makes reference to Clause 38 of Section II of the Tenancy Agreement at p13 whereby the respondent:

“shall observe and fulfil with such services quality and operational standard requirements not in conflict with the terms of this Agreement, as may be made from time to time by the Landlord and/or the Manager governing and controlling the use, services quality, safety and security of the Building and/or the Premises (the “Services Quality Requirements”) in accordance with the terms of the Fresh Market Standard Operation Guidelines at Annex II hereto.”

25.  Paragraph B.1 in Part 2 of the Fresh Market Standard Operation Guidelines reads as follows:

“1. Utilities

The existing Market Operators shall submit documents containing details of utilities, such as water, electricity, gas and telecommunication, to the (Fresh Market Operation Team) at least two months before the handover date. The new Market Operators shall apply to the relevant providers of utilities, such as Water Supplies Department, electricity companies, gas companies and telecommunication companies, for the transfer of the relevant utilities and the change of name of relevant accounts. In addition, if any related facility (such as water meter or electricity meter) is shared with other users other than Link, the new Market Operators shall apply for the installation of a separate meter. If the installation of a separate meter is technically impossible, a separate sub-meter shall be installed. Otherwise, the parties involved shall reach an agreement on the sharing of related costs.” (emphasis added)

Ms Tse argues that “joint charges” would only be incurred in the latter situation when the related facility is shared and a separate meter is technically impossible.

26.  However, I do not see how paragraph B.1 of the Fresh Market Standard Operation Guidelines etc would assist the respondent; as explained in §22 above, I do not consider “joint charges” in Clause 3 are confined to the utility charges etc. On the contrary, my view is further reinforced when paragraph B.1 of the Fresh Market Standard Operation Guidelines suggests “the parties involved shall reach an agreement on the sharing of related costs”. This latter is completely different from “a fair proportion of any joint charges” would be “determined by the Landlord or the manager” under Clause 3; obviously, the two provisions are talking about different items.

Whether the meaning of “joint charges” includes management charges

27.  Also, according to Ms Tse, when the Tenancy Agreement was signed, both parties (ie the Landlord and the respondent) fully appreciated that no related facility (such as water meter or electricity meter) was shared with other users; therefore, there were no “joint charges” and Link Properties Limited or its agent Link Asset Management Limited never demanded any “joint charges” from the respondent.

28.  If Ms Tse’s argument is correct, the provision of “joint charges” appear to be otiose and this mutilates against her assertion that “joint charges” are confined to the utility charges.

29.  On the other hand, that “joint charges” were not incurred or charged to the respondent does not necessarily mean they would not be charged in the future. For instance, Mr Yau explained in trial that it would take some time to work out a fair proportion chargeable to the respondent; therefore, even by the time of the present application, the applicant was only chasing the Joint Charges for the period up to 31 August 2017.

30.  Referring to the fifth factor in Arnold v Britton, supra, Ms Tse submits that the contractual parties and the respondent more particularly can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. That is, according to MS Tse, there would had been no “joint charges”. But my answer is “joint charges” were not incurred or more correctly not yet calculated; this is opposed to Ms Tse’s argument that “joint charges” would not have been envisaged at all. The latter would only be correct if the definition of “joint charges” refers only to the utility charges suggested by the respondent which I do not agree.

31.  Ms Tse for the respondent argued that the Joint Charges demanded by the applicant comprise only the latter’s or the Manager’s operating expenses which are not “joint charges” per se and at most should be reflected in the management fee which is however not payable by the respondent under the Tenancy Agreement.

32.  Ms Tse also tries to make comparison of the Tenancy Agreement with those for other shops in the Building where “Management Charge” was specifically provided in Clause 3.3 and paragraph 8 in the Schedule hereto. In contrast, there is none in the Tenancy Agreement.

33.  In spite of this, I have accepted Mr Yau’s submission that the letting of the Premises is quite different from the other shops in the Building because the Premises are restricted to the operation of a traditional market as outlined in §5 above. For a standard shop, I agree that the management charge payable thereof can be more readily calculated or apportioned.

34.  Indeed, in pursuit of the market operation, Clause 19(d) of Section IV of the Tenancy Agreement permits the respondent to grant licence(s) to third party(ies) to operate business on the Premises. As Ms Tse has pointed out, at Clause 19(d)(viiii):

“No fees other than licence fees, rates, air-conditioning charges and management fees shall be payable by the Licensees to the (respondent)”

35.  While Ms Tse submits that the referral of management fees in this latter clause but none elsewhere in the Tenancy Agreement means no such charges are payable by the respondent, I consider otherwise.

36.  As I mentioned at §33 above, the nature of running the Premises and those of the other shops are quite different and therefore the term “the management charge” apposite to the leases of the shops may not be applicable or fair to the respondent by reference to description of the Premises at §6 above. In this regard, I note the term “management charge” is used in the tenancies for the general shops which conveys the message that this is a “charge” which is consistent with the term of “joint charges”; on the other hand, the term “management fees” instead of “management charge” is adopted at Clause 19(d) of Section IV of the Tenancy Agreement. I fully agree that “… people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other.”[5]

37.  While Ms Tse has only recited the fifth factor in Arnold v Britton, supra, I consider the third and fourth factors discussed in that case also relevant:

“19. The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. Judicial observations such as those of Lord Reid in Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, 251 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, 201, quoted by Lord Carnwath JSC at para 110, have to be read and applied bearing that important point in mind.

20. Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill‑advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re‑writing it in an attempt to assist an unwise party or to penalise an astute party.” (emphasis added)

38.  In that case, the Supreme Court of the United Kingdom has supported a literal interpretation of a 1974 service charge clause in a lease even though by compounding service charges at 10% annually as it means, it would be harsh for the individual tenants. Lord Neuberger (providing the leading judgment in this case) held that that meaning has to be assessed in the light of: (i) the natural and ordinary meaning of the clause; (ii) any other relevant provisions of the contract; (iii) the overall purpose of the clause and the contract; (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed; and (v) commercial common sense; but (vi) disregarding subjective evidence of any party's intentions.

39.  Having similarly reviewed Clause 3 which states “… any joint charges as determined by the Landlord or the manager …”, I agree that “joint charges” may comprise management charges which include, inter alia, the Manager’s staff costs, cleaning charges, maintenance and repair costs, gardening and decoration costs etc as per the Expense Statement from Guardian Property Management Limited.

Whetherthe Joint Chargesare a fair proportion

40.  By a letter dated 12 June 2017 to the respondent, the applicant explained how the Joint Charges were worked out. Basically it divided the total expenditure for the common area of the Building by the total internal floor area (24,174 sq ft) and multiplied the internal floor area (4,678 sq ft) of the Premises.

41.  At this juncture, I would like to emphasize that the applicant adopted 4,678 sq ft instead of the total internal floor area of 7,638 sq ft. See the Description of the Premises cited at §6 above.

42.  Turning to the respondent’s complaint that it has no idea of how the total internal floor area of 24,174 sq ft was arrived at, I consider it has turned a blind eye to the schedule of respective areas of the shops stated and attached to Expense Statement from Guardian Property Management Limited. I trust those areas can be readily verified subject to minor discrepancy or margin of error but bearing in mind Clause 3, the calculation will be “… determined by the Landlord or the manager …”

43.  Thus, “(i)f the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other.” I agree that the Joint Charges as claimed by the applicant against the respondent a fair proportion.

Conclusion

44.  The respondent is liable to pay the Joint Charges as demanded or claimed by the applicant for the period from 1 June 2016 to 31 August 2017, failing which the respondent has breached Clause 3 under Clause 1(a)(ii) of Section VI of the Tenancy Agreement.

45.  However, by section 58(2) of the Property and Conveyancing Ordinance, Cap 219, “the court may grant or refuse relief, as the court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, thinks fit ...”

Order

46.  Having regard to the above, I make the following order:

(1) Subject to paragraph (3) below, the respondent do deliver vacant possession of the Premises to the applicant;

(2) The respondent do pay the applicant arrears of Joint Charges for the period from 1 June 2016 to 31 August 2017 in the sum of $543,839.23;

(3) If the respondent should on or before 12 December 2017 (“Relief Expiration Date”) pay into the applicant all the arrears of the Joint Charges as stated in paragraph (2) above, the respondent be relieved from the forfeiture incurred herein, and the lease of the Premises be reinstated.

Costs

47.  As the applicant does not ask for costs, there be no order as to costs.