CKW CO LTD v. SECRETARY FOR JUSTICE

bjbj HCA 1232/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1232 OF 2002 ____________ BETWEEN CKW COMPANY LIMITED Plaintiff and SECRETARY FOR JUSTICE Defendant ____________ AND HCA 2293/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 2293 OF 2002 ____________ BETWEEN SECRETARY FOR JUSTICE Plaintiff and CKW COMPANY LIMITED Defendant ____________ Before: Deputy High Court Judge To in Court Dates of Hearing: 10-14 and 17-19 January 2005 Date of Judgment: 8 March 2005 ______________ J U D G M E N T ______________ Introduction I have before me two actions, both of which arose out of a government short term tenancy ( ), KX2127, in respect of a plot of land in part of the former Kai Tak International Airport (the Premises ). In the first action, HCA No 1232 of 2002 (the 1st Action ), the tenant, CKW Company Limited ( ), seeks a declaration (1) that the Government is estopped from serving any notice to quit to terminate the tenancy at any time before the Government requires the Premises for planned development in conjunction with the existing airport passenger terminal and to build a railway depot thereon, (2) that the notice to quit issued by the Government is void and of no effect or alternatively the Government is not entitled to rely on the notice and (3) in the alternative, that CKW is entitled to a renewal of the tenancy of the Premises until the aforesaid event occurs. In the second action, HCA No 2293 of 2002 (the 2nd Action ), the Government seeks against CKW vacant possession of the Premises and mesne profit for the period from 1 June 2002 until the date of delivery of vacant possession. Both actions were set down for trial on 10 January 2005. Initially, the Government s claim in the 2nd Action was for mesne profit at the contractual rate of $68,000 per month. On 10 December 2004, a month before trial, the Government took out a summons to apply for leave to file a supplemental witness statement of Mr Anthony Tin ( ) and an expert valuation report of Miss Angela Chan in support of a valuation of mesne profit in excess of twenty times of the contractual rate as claimed in the statement of claim. There was no application by the Government to amend the statement of claim. I refused the application for leave to file the expert valuation report because it was irrelevant and unnecessary as the statement of claim then stood and up till that stage of the proceedings the rate of mesne profit was not at issue. On 15 December 2004, the Government took out a summons seeking leave to amend the statement of claim in respect of its claim for mesne profit and directions for filing of an expert valuation report. On 20 December 2004, I granted leave to amend the statement of claim. As CKW required more time to prepare an expert report in reply, I ordered the issue of liability to be tried and determined on 10 January 2005 as scheduled before any issue or question concerning the amount of mesne profit and/or damages to be awarded and gave other consequential directions. Following a change in CKW s legal team, CKW appealed against my interlocutory order of 20 December 2004 granting the Government leave to amend its statement of claim and ordering split trial on the issue of liability and quantum. On 6 January 2005, CKW applied for a stay of the proceedings in both actions pending its appeal. I refused that application. At the trial starting on 10 January 2005, Mr Leong SC, counsel for CKW, applied for leave to amend CKW s statement of claim in the 1st Action and its defence in the 2nd Action. Part of the amendments were consequential amendments necessitated by the Government s amended statement of claim in the 2nd Action. Mr Mok, counsel for the Secretary for Justice representing the Government, reasonably consented to those consequential amendments to be filed out of time, but objected to the filing of the non-consequential amendments. These non-consequential amendments related to the estoppel pleaded by CKW. Formerly, back in 2000, CKW relied on an estoppel that the Government would not terminate the tenancy before the end of 2004. The effect of the non-consequential amendments is to plead an estoppel that the Government would not terminate the tenancy until the events which I have referred to in paragraph 1 occur. Since the evidence relied on by CKW as the basis of the estoppel had been fairly disclosed in the witness statements of CKW, I accepted Mr Leong SC s submission that the amendment was to bring about a change in the emphasis of CKW s case and that CKW is not pleading a different case. I allowed the amendment so that the real issue in controversy may be justly and fairly disposed of. Having granted the amendment, Mr Leong SC made what he argued to be a fresh application occasioned by his non-consequential amendments to adjourn the proceedings so that the issues of liability and quantum could be tried together. He also made the very appealing proposition that the pending appeals against my earlier decisions would be disposed of with costs amicably settled if this adjournment was granted. I considered this application was an invitation to revisit my earlier decision which had now formed the subject matter of an appeal. I did not consider I had jurisdiction to do so and I refused the application. CKW then appealed against that interlocutory decision and obtained an urgent hearing of that appeal on 14 January 2005. In the meantime, the hearing before me continued. Counsel were released in the morning of 14 January 2005 to attend the hearing in the Court of Appeal. That appeal was dismissed by the Court of Appeal. The background CKW is a company owned by Wong Chung Kai ( Wong ) and his sister. It is managed by Wong, his sister and his brother ( ). The business of CKW includes operating supermarkets and leasing Government land under STTs for subletting. Wong is very experienced in developing land leased under such STTs and subletting it to sub-tenants. CKW successfully tendered for the tenancy in respect of the Premises from the Government. On 30 May 2000, CKW entered into a written tenancy agreement (the Tenancy Agreement ) with the Government to occupy the Premises at an annual rental of $816,000 for a term certain of two years commencing from 1 June 2000 and thereafter renewable quarterly until the tenancy is terminated in accordance with the terms of the Tenancy Agreement. Paragraph 1 of the Second Schedule to the Tenancy Agreement provides that the tenancy may be terminated at the expiration of the second year of the tenancy by either party giving to the other at least three calendar months notice in writing to that effect to expire at the expiration of the second year. The Premises were expressly let to CKW for the purpose of operating an amusement park or passenger carrying tethered balloon amusement ground or exhibition or bazaar or any combination of these and together with such ancillary facilities as may be approved by the District Lands Officer of the Government. CKW took possession of the Premises on 1 June 2000 and has since incurred expenses in surfacing and re-surfacing the Premises, providing lighting and drainage facilities to enable the Premises to be sublet. Four months prior to the expiration of the fixed term of the Tenancy Agreement, pursuant to paragraph 1 of the Second Schedule to the Tenancy Agreement, the District Lands Officer on behalf of the Government, gave a written notice dated 1 February 2002 to CKW to quit and deliver up vacant possession of the Premises to the Government on 1 June 2002. CKW refused to deliver up the Premises and claimed that the Government is estopped from serving any notice to quit on CKW. It instituted the 1st Action against the Government seeking the declarations prayed for. CKW s case is built on proprietary estoppel. It alleges that on two occasions in August and September 2000, Tin, an estate manager of the Kowloon East/District Lands Office of the Lands Department, represented to Wong that despite the tenancy being a short term tenancy, CKW could stay on the Premises until the Premises would be required for planned development together with the existing airport passenger terminal for the building of a railway depot which was estimated to take place not earlier than 2004 or 2005. Relying on the representation, CKW incurred $4.1 million in improving the Premises by (i) resurfacing the ground, (ii) replacing mobile toilets with container type washrooms and (iii) building a power transformer room, upgrading electrical facilities and installation of flood lights. CKW alleges that it is unconscionable to issue the notice to quit when CKW has incurred such expenses on the Premises and when the Government has no immediate need to repossess the Premises for the said planned development. The Government denies having made the representations through Tin and asserts its contractual right to terminate the tenancy. It instituted the 2nd Action to recover possession and claims mesne profit with effect from 1 June 2002. The law and the issues Counsel are in agreement as to the legal principles applicable to proprietary estoppel. Proprietary estoppel is a species of equitable estoppel, a relief for inequitable conduct. The doctrine has been concerned almost exclusively with the acquisition of rights in or over land. It is one of the exceptions to the general rule that a person who spent money in improving the property of another has no claim to reimbursement or to any proprietary interest in the property. It is permanent in effect and can found a cause of action. The ingredients of proprietary estoppel are: encouragement or representation; detrimental reliance on the encouragement or representation and unconscionability on the part of the land owner to insist on his strict legal rights. The party raising an estoppel has to show that (1) he acted on certain expectation or belief that he either owned a sufficient interest in the property or that he would obtain such an interest as would justify incurring expenditure or suffering detriment on the property; (2) this expectation or belief must have been encouraged by the land owner; (3) he did suffer detriment by incurring expenses or other forms of detriment; and (4) there was no bar to the equity: see Snell s Equity, para 39-12 to 39-17. These legal principles are well settled. There is no question of any bar to the equity. The disputes in these two actions are factual disputes. These are: (i) whether the alleged representation was made by the Government through Tin; (ii) whether the representation created any expectation or belief as would justify the expenditure; (iii) whether such expectation or belief was encouraged by the Government; and (iv) whether CKW incurred the expenditure in reliance on the expectation or belief. This is a case in which the outcome turns solely on my finding of the credibility of the parties witnesses. Before turning to the parties evidence on these issues, it would be helpful to set out the factual background at the material time so as to test the witnesses evidence against that background and the contemporaneous and incontrovertible documents. The Government s practice in administration of STTs and tender procedure An important material background is the Government s practice in the administration of STTs and the tendering procedure. These practice and procedure are set out in Lands Administration Office Instruction (the Instruction ). These are generally referred to as internal guidelines. Some of these guidelines are known to the trade and to CKW through its experience and its contact with staff of the District Lands Office. STTs are generally considered to be tenancy agreements having a term of not more than seven years. These may be created by tender, direct grant and by conversion from Government Land Licence/Permit or regularisation of tolerated structures. In general, new tenancies are let by tender in accordance with procedures under the Abbreviated Tender System for STT Guideline Procedure/Check List ( Tender Procedure ). The power to lease or dispose of land is vested in the Chief Executive. This power has been delegated in accordance with Section A-3 of the Instruction to officers of the rank of Senior Estate Surveyors and above in the Lands Department according to the level of delegation. The power is not delegated to the level of estate surveyor or estate manager. Therefore, Tin has no power whatever to approve or execute STTs or to modify any of its terms. A tenancy usually begins as a fixed term tenancy. The duration of the original term will depend on the particular circumstances of the case. Upon expiration of the fixed term, fixed term tenancies will be allowed to continue as periodic tenancies unless it is clearly established that the site will be available for more than three years: paragraph 5.3 of Section C-2 of the Instruction. In such cases, the periodic tenancies will continue until the land is required for its permanent use and subject to rental review once every three years and the tenants observing the tenancy conditions: 5.2 of Section C-2 of the Instruction. If it is clearly established that the site will be available for more than three years, a re-tendering exercise will be undertaken within the last six months of the fixed term. The existing tenant will be allowed to participate in the re-tendering exercise. Thus, six months prior to the expiry of a fixed term tenancy, the District Lands Officer or the appropriate estate manager on his behalf, would consult the various Government departments to ascertain whether the land will be required for its permanent use. If he is advised that the land will not be so required for the coming three years, he will initiate the re-tendering exercise. This will begin with the issue of a notice to quit to the existing tenant to terminate the tenancy upon the expiry of the fixed term and initiate action in accordance with the Tender Procedure for re-tendering the land. If he is advised that the land will be so required within the coming three years, he will allow the tenancy to continue as a periodic tenancy on a quarterly basis by issuing quarterly demand notes for rent and withholding the issue of the notice to quit until three months before the land will be required for its permanent use. In the instant case, the contemporaneous and incontrovertible documents show that in accordance with the Tender Procedure, Tin issued a circular memo containing particulars of proposed STT No KX2127 with a draft tenancy agreement and a site plan to a number of addressees and invited their comments. These addressees were the relevant and appropriate officers of the Territory Development Department, Transport Department, Highways Department, Water Supplies Department, Leisure and Cultural Service Department, Fire Services Department, Police Department, Home Affairs Bureau, Government Flying Service, Planning Department, Drainage Services Department, Electrical and Mechanical Services Department, Environmental Protection Department, Civil Aviation Department and certain officers in the Lands Department. After receiving comments from the addressees, Tin prepared notes for discussion at the District Lands Conference in respect of the proposed STT. The proposed STT was approved by the District Lands Conference at a meeting on 20 January 2000. Advertisement and tendering procedure then followed, which resulted in CKW being awarded the tenancy. It could be seen from the above procedure that the role of the District Lands Officer is to act as agent of the Government in entering into tenancies, while land use is a matter mainly for the Territory Development Department. It would be convenient to refer to Tin s evidence as to what happened about six months prior to the expiry of the fixed term of this tenancy. His evidence in this respect is also supported by incontrovertible documents. Tin issued a memo dated 10 December 2001 to the Project Manager/Kowloon of the Territory Development Department and the Government Engineer/Railway Planning of the Highways Department, to enquire whether the Premises will be required for construction works in connection with the South East Kowloon Development. He was informed by the Project Manager/Kowloon of Territory Development Department via a memo dated 13 December 2001 that the Premises will likely be required for the South East Kowloon Development construction works by mid/end 2003. He was also likewise informed by the Government Engineer/Railway Planning of the Highways Department by a memo dated 17 December 2001 that the Premises will be required for the proposed Shatin to Central Link works before mid 2003. Thus in accordance with paragraphs 5.2 and 5.3 of Section C-2 of the Instruction, the tenancy would be allowed to continue as a periodic tenancy on a quarterly basis at the same rent until mid 2003. However, according to Tin, prior to the expiry of the fixed term, a decision has been reached within the District Lands Office not to continue the tenancy with CKW in view of its unsatisfactory performance but to have the STT re-tendered. This may have to do with CKW s persistent breach of tenancy condition in using the Premises as a paid public car park or that the Government thought it could significantly increase its revenue by re-tendering the Premises for use as a paid public car park instead of continuing the tenancy as a periodic tenancy for use as an amusement park. CKW suggests that it was because of its complaint to the ICAC and the Ombudsman. There is no need for me to surmise the purpose behind the Government s decision. Tin s visit to CKW It is common ground that shortly after CKW successfully tendered for the tenancy, Tin visited the office of CKW to replace a plan of the Premises in the Tenancy Agreement. He was received by Ong and he introduced himself. Tin told Ong that he joined the District Lands Office from private practice. That was Ong s first encounter with Tin. Thereafter, Tin also referred interested sub-tenants to CKW. Ong was impressed by Tin s friendly and zealous attitude and considered him different from other civil servants whom he had dealings with. The Sung Wong Toi episode in July 2000 On 22 August 2000 prior to the opening of the flea market, Tin wrote to CKW requesting a revision of the boundary of the Premises leased under the tenancy so as to enable a small piece of land to be carved out of the Premises for Government use. Ong discussed the request with Tin over the telephone. Tin told Ong that the Tenancy Agreement was binding on the Government as it was on CKW and if CKW did not consent to the revision, it may inform the District Lands Officer. Accordingly, CKW replied by its letter dated 23 August 2000 to decline Tin s request. These facts are not in dispute. These facts have no direct relevance to the estoppel raised by CKW. No representation or promise has been held out by Tin or the Government on which an estoppel could be raised in respect of the Premises. However, CKW relied on this incident to boost its evidence of the trust and confidence it reposed in Tin. CKW had previous experience in which part of its land in Tai Po rented under a STT was re-possessed by the Government under Clause 4(f) of the tenancy agreement. This episode and Tin s earlier friendly visit are relied on by CKW as evidence of the very helpful, friendly and non-bureaucratic attitude of Tin which won CKW s trust and confidence and hence its reliance on Tin s representation. On the other hand, Tin explained that it never was the Government s intention to exercise its right under Clause 4(f) in the present case. The power under this clause could only be exercised by the Chief Executive if repossession of the land is required for the improvement of the Hong Kong Special Administrative Region or for any other public purpose. The land was requested by the Electrical and Mechanical Services Department ( EMSD ) for use as a liquefied petroleum gas refuelling station. The request was made after the tenancy had been entered into. EMSD did not intend to pay compensation to CKW nor was it prepared to make out a case of Clause 4(f) before the Chief Executive. It was therefore decided to seek CKW s consent to a revision in the boundary of the Premises and in his letter to CKW, Tin made no reference to Clause 4(f). Hence when the consent was not forthcoming from CKW, EMSD decided not to pursue the matter but to renew its request when the fixed term under the tenancy expired. Tin said that if this demand should persist, the STT would be determined at the end of the fixed term and re-tendered without the area required by the EMSD. This episode is therefore also relied upon by the Government as objective evidence that Tin with full knowledge in late August that the tenancy would have to be determined would not have made the promise in early September as alleged. Whether CKW considered Tin a person in whom it can repose trust and confidence has to be assessed on the basis of Wong s and Ong s subjective intention and their knowledge of the surrounding circumstances. The communication between Tin and EMSD was unknown to Wong and Ong and has no bearing on this issue. On the other hand, Tin s knowledge that he could not be in any position to make the representation makes it unlikely that he would have made the representation. However, that cannot exclude the possibility that he could have made the representation if he should choose to do so recklessly or for his personal motive. Complaints against CKW Though the Government was not relying on CKW s breaches of tenancy condition for recovering possession of the Premises, the credibility of Wong, Ong and Tin could be tested against the contemporaneous complaints against CKW for breaches of the Tenancy Agreement. Within a week of commencement of the tenancy, on 30 June 2000, Tin wrote to CKW pursuant to special condition 33 ordering CKW to remove its advertising banners attracting the public to the availability of paid public parking in the Premises and reminding CKW that the tenancy did not permit CKW to use the Premises as a paid public car park. At that time CKW had not even started operating a flea market at the Premises. On 12 July 2000, On Park Parking Limited, a neighbouring tenant under a STT, through its solicitors complained to the District Lands Office against CKW for using the Premises as a paid public car park. On Park Parking Limited repeated its complaint by letters dated 2 and 7 August 2000. These complaints were supported by advertisements quoting parking fees contained in fliers issued by CKW and parking fee receipts. On 9 August 2000, Tin wrote to CKW referring to an inspection on 7 August 2000 during which about 300 vehicles were found parked at the Premises and quoting an article in Apple Daily News in which CKW allegedly offered 800 parking spaces at an hourly rate and daily rate of $3 and $10 respectively. Tin warned that such conduct constituted serious breaches of the Tenancy Agreement and demanded rectification. CKW replied explaining that it was an innocent breach due to excessive number of visitors and undertook to make improvement. On 23 August 2000, Tin wrote to CKW repeating his demand of 1 August 2000 for removal of the parking signs erected at the Premises and complained that fifteen tourist buses were found parked at the Premises at 7 o clock in the morning. Tin repeated his warning that using the Premises as a paid public car park would be treated as a serious breach of the Tenancy Agreement which may result in termination of the tenancy. On 31 August 2000, Tin wrote again demanding explanation for the parking of tourist buses found on the morning of 23 August 2000 and complained of continued use of the Premises for parking tourist buses on 26 August 2000. He repeated his warning that such breach of the Tenancy Agreement may result in termination of the tenancy. CKW replied on 2 September 2000 that the tourist buses conveyed visitors to the Premises and were thus allowed to be parked there free of charge as a concession. Such explanation is hardly credible as the flea market was not yet open at 7 o clock in the morning. On the same day, Tin wrote repeating his demand for removal of the parking signs which he had requested by his letter of 23 August 2000. It should be borne in mind that it was amidst these complaints that Tin visited the Premises in early September 2000 to investigate the complaints when the representation relied on by CKW was allegedly made by him. On 16 September 2000, On Park Parking Limited complained again about CKW s use of the Premises as a paid public car park, displaying of parking signs and overnight parking. The complaint was supported by receipts issued by CKW. Tin issued two warning letters to CKW dated 21 September 2000 and 5 October 2000. On 12 October 2000, CKW replied saying that the parking signs had been covered up but the covers had been maliciously removed by some third parties. In his evidence in Court, Wong said that the signs were installed on the wire-netting and CKW only removed those which were installed at lower level and covered up those at the higher level with trash bags due to lack of manpower. CKW s explanation is hardly convincing. Obviously, CKW had never removed all the parking signs for over a month and had no intention ever to remove all of them at all. These complaints about use of the Premises as a paid public car park continued into 2002. In addition, there were other complaints about flying of kites, unauthorised structures, operation of unlicensed restaurant and using the Premises for storage of goods, etc. There were also complaints by other neighbouring tenants about mismanagement by CKW and one complainant even offered $18 million annual rent for leasing the Premises for use as a paid public car park. On the other hand, CKW complained to the ICAC and the Office of the Ombudsman in late 2001 against the District Lands Office for corruption. I do not intend to refer to any of these later complaints. The truth or otherwise of these complaints is irrelevant for the purpose of the present actions. These later complaints perhaps explain why the District Lands Officer decided not to continue CKW s tenancy after the expiration of the fixed term as a quarterly tenancy. But that is a matter which I need not be concerned with. I have referred to the earlier complaints received by the District Lands Officer between June and September 2000 and Tin s and CKW s correspondences in relation to those complaints up to 12 October 2000. There is also no need for me to investigate into the truth or otherwise of these complaints as the Government is not relying on any breach of the Tenancy Agreement as a ground for repossession of the Premises. The purpose of my referring to these earlier complaints and correspondences is to set out the scene as at August and September 2000 when the representations relied on by CKW were allegedly made by Tin so that I can test the veracity of the evidence of Wong, Ong and Tin against this background. Whether the evidence established the pleaded representation Before considering CKW s evidence about the representation, it may be convenient to deal with Mr Mok s submission that CKW s evidence even if accepted is insufficient to give rise to the pleaded representation and hence the proprietary estoppel. He referred to the particulars of representation in CKW s statement of claim in the 1st Action as amended on the first day of trial and the evidence of Wong and Ong as to what Tin represented to them over the telephone and during Tin s site visit. He also referred to the opening speech of Ms Tsui, counsel for CKW, in which Ms Tsui made it very clear that CKW s case is that Tin s representation was to the effect that the tenancy would last until the Government would require the Premises for planned development and that planned development is tied exclusively to the railway depot to be developed in conjunction with the airport passenger terminal and not any other project such as the building of a hospital or other isolated development of the Premises separate from the airport passenger terminal. CKW s evidence does not go that far. However, I do not consider that fatal to CKW s case. CKW s pleading might have been drafted in wider terms than necessary, counsel might have opened her case wider than she could prove and witnesses might have not come up to proof. In my view, so long as the evidence is within the pleading and, if accepted, supports an estoppel, CKW is entitled to succeed. It is with this in mind, I examine Wong s and Ong s evidence. Mr Mok also relied heavily on CKW s latest amendment in its statement of claim as a criticism of Wong s credibility. He referred to paragraph 8(a) of the statement of claim prior to the amendment which had been settled by counsel in which CKW pleaded that Tin represented that the tenancy would continue to at the earliest 2004 to 2005 as the Government would not confirm the zoning of the Premises as an environment vehicle servicing plant until 2004 or 2005. He submits that until the first day of trial, CKW s pleaded representation for the past three years was the representation about the zoning of the Premises as an environmentally friendly vehicle servicing plant whereas it is apparent from the outline zoning plan that the depot for environmentally friendly public transport system and railway depot of which the Premises form part are two different sites altogether. He criticised CKW s lack of explanation for the change in pleading and suggested that Wong changed his evidence in Court in an attempt to fall in line with the latest amendment in the statement of claim. I think the criticism has been exaggerated. In their letter dated 13 March 2002 protesting against the notice to quit, Wong referred to the alleged representation about development of the airport passenger terminal together with the Premises in 2004 or 2005. I would not disbelieve Wong s evidence merely because of the amendment to the statement of claim. Having set out the background and considered Mr Mok s submission on CKW s amendment in the amended statement of claim and representation, I now turn to examine the alleged representation. The oral invitation to the opening ceremony the first representation The flea market in the Premises was formally opened on 5 August 2000. Prior to that, on 20 July 2000, Ong sent a written invitation to Tin and the District Lands Officer inviting them to attend the opening ceremony. Upon the advice of the District Lands Officer, Tin declined CKW s invitation by a letter dated 25 July 2000. According to Wong, following the written invitation, he telephoned Tin and orally invited him to attend the ceremony. Tin declined the invitation but told Wong that he was satisfied with CKW s performance with wide media coverage and encouraged Wong to do well in the management aspect of the area because you are going to have a long period of time managing this area and that the area will only be repossessed when there is formal land development. Wong made no mention of formal land development into a railway depot as he did in that part of his witness statement, which counsel agreed shall not be admitted as evidence in chief. Tin admitted that he had received an oral invitation from CKW which he declined. He denied he made the representation as alleged on that occasion. He could not recall if the caller had identified himself as Wong or Ong but his impression was that it was Ong because he recognised his voice. In Cantonese, Wong and have the same pronunciation. Tin had no contact with Wong prior to that telephone conversation but had met Ong in CKW s office when replacing a plan of the Premises. There is no reason why Wong and Ong should lie about which one of them was the person who spoke to Tin on that occasion. Given the vague impression Tin had about the conversation, it is probable that he erroneously assumed that the caller was Ong with whom he had previously liaised. I am satisfied that the person with whom Tin spoke over the telephone was Wong. The crucial dispute is whether he made the representation during that telephone conversation. Ms Tsui suggested that being the estate manager in charge of the former Kai Tak International Airport area Tin knew from the various plans available to him that the Premises would not be required for development and made the promise to CKW. She criticised Tin as an over-cautious and evasive witness. Her criticism is based on Tin refusing to say whether he had seen the development plans or knew about a depot being planned over the former Kai Tak International Airport area in April 1999. Tin s evidence is that in general he would not know if any land leased under a STT could be allowed to continue as a periodic tenancy upon expiry of the fixed term. He did not have to consult any plans for that matter and did not rely on any estimate by other Government departments. He said all these were unnecessary as the establish practice was that six months prior to the expiry of the fixed term, the District Lands Officer will issue a circular memorandum to relevant departments enquiring if the site will be available for lease for more than three years. In the light of the actual practice in the District Lands Office, the Instruction and the incontrovertible documents, I could not doubt the truthfulness of Tin s evidence. It is difficult for him to recall now whether he had knowledge about the planned depot at a particular time some five years ago. Development of the Premises was a matter for the Territory Development Department and not a matter for Tin as the Government s land agent. He cannot be fairly criticised as being over-cautious or evasive. On the objective facts, it is incredible that Tin would have made such a promise. Under the Instruction, Tin was not delegated the authority to approve any STT. Not only that, in accordance with the Instruction, he was duty bound to ascertain from the various Government departments six months prior to the expiry of the fixed term whether the Premises would be available for more than three years. If it would, then the Premises would have to be re-tendered. It is only where the Premises would not be available for lease for more than three years and that they would not be required immediately would the tenancy be allowed to continue as a periodic tenancy on a quarterly basis. In July 2000, he was not in any position to know if the tenancy could be extended as a periodic tenancy. According to the District Board Paper 65/00 and Consultation Digest as at July 2000, the estimated commencement date of development of the site including the Premises was 2002. If Tin had read the plan and the Paper in July 2000, he would have known that he could not be in any position to indicate to CKW that the Premises would not be required after the expiration of the fixed term such that the tenancy could continue as a periodic tenancy, let alone to make any promise as alleged. But of course, Tin s evidence is that he did not read those plans as it was not necessary for him to do so in his position as estate manager. There is no reason not to believe him for if he had read the plans he would be in a much stronger position to deny making the representation. This telephone invitation was probably made between 20 July 2000 when the written invitation was issued and 25 July 2000 when Tin declined the invitation by letter. Wong and Ong said that CKW s relationship with the District Lands Office had always been good until late 2001. Tin disagreed. At that time, Tin was aware from his or his staff s inspection of CKW s breaches of the Tenancy Agreement by erecting banners advertising the Premises as a paid public car park even before the flea market was opened and he had written to CKW ordering removal of the banners. Just shortly before the telephone conversation, Tin had also received a letter from the solicitors of On Park Parking Limited complaining about CKW s use of the Premises as a paid public car park. The complaint was supported by fliers and parking tickets issued by CKW. In the light of the complaints received and warning letters issued by Tin, I have no doubt about the truthfulness of Tin s evidence. At the time, CKW s relationship with the District Lands Office was not good. With knowledge of CKW s serious breaches of the Tenancy Agreement shortly after the tenancy commenced, it is improbable that Tin would have told Wong that he was satisfied with CKW s performance. It would be very unusual that Tin as an agent of the Government would wish to make such a promise or to give such an indication about extending the tenancy to an unpromising and disappointing tenant. Furthermore as at July or August 2000, Tin could not have known if the tenancy could be continued as a periodic tenancy upon expiry of the fixed term in June 2002. In the circumstances, I accept Tin s evidence. I do not think Wong and Ong s evidence about the telephone conversation credible. Tin s visit in September 2000 the second representation The relationship between CKW and the District Lands Office was even worse at the time of Tin s visit in September 2000. There were numerous complaints by neighbouring tenants against CKW for breaches of the Tenancy Agreement and Tin had written a number of warning letters to CKW. Thus in early September 2000, Tin went on a surprise visit to the Premises to check on CKW. However, his mission became overt when Ong noticed his presence at the entrance. He was received by Wong and Ong. It is common ground that during the visit Tin informed Wong and Ong that he came to investigate complaints against CKW. Then the three of them toured round the Premises. A staff of CKW, Mr Kwok ( Kwok ), followed them at a short distance to await any instruction Wong and Ong might give; but Tin had no recollection about Kwok. Wong s evidence is that during this visit Tin again expressed satisfaction with CKW s management of the Premises and opined that there were rooms for improvement to the lighting condition of the flea market and to the sanitary facilities. Then Wong replied that such improvements would require substantial investment and it would not be realistic from a business perspective to make such substantial investment as the tenancy had only a two-year duration certain. It was at this stage of the conversation Wong alleged that in order to alleviate him of his worries, Tin for a number of times told Wong that the tenancy had a long time to run, assured him that he could increase his investment in the Premises, that this STT would only be terminated in 2004/2005 and that it was only until then that the airport passenger terminal and the Premises would be taken back for the building of a railway depot. Though on this evidence there is no promise that the Premises would not be repossessed until it is required for planned development in conjunction with the existing airport passenger terminal and to build a railway depot thereon, the representation nevertheless covered repossession of the airport passenger terminal and the Premises for building a railway depot. That in my view is within the pleading and if accepted would support an estoppel. Wong and Ong corroborated with one another as regards the representation, the route taken and the exit where Tin left. Kwok was called to give corroborating evidence. Despite Kwok s very affirmative witness statement about the conversation between Tin, Wong and Ong, Kwok s evidence was that he only followed at a close distance and did not hear much about the conversation save when the party reached the exit. He only heard bits and pieces of the conversation to the effect that Tin asked Wong to do better and that he would be going to do for a long time. These words, even if they had been said, do not support CKW s case of representation, nor could they boost Wong s and Ong s credibility. I consider Kwok s evidence neutral and of no assistance to CKW. Tin, of course, denied to have made the representation. When Wong s and Ong s evidence is tested against the incontrovertible background circumstances, I consider their evidence is inherently incredible. In addition to Tin s warning letter dated 30 June 2000 and the complaint from On Park Parking Limited, which I have referred to earlier when considering the first representation, Tin received two more complaints from On Park Parking Limited and had himself written to CKW on 9 August 2000 complaining about 300 vehicles being parked inside the Premises and about the article in Apple Daily News about 800 car parking spaces being available for rent at the Premises at a daily rate of $10 per day and $3 per hour. Tin wrote again on 23 August 2000 demanding CKW to remove the parking signs erected at the Premises and about parking by tourist buses at 7 o clock in the morning. He even warned CKW of termination of the tenancy if the breaches persisted. On 7 September 2000, Tin repeated his demand for removal of the parking signs, a demand which CKW had ignored since 23 August 2000 and which CKW evinced no intention ever to comply. Tin and other colleagues, including an in-house lawyer from the Lands Department had visited the Premises and had been allowed to park their car in the Premises expressly not for the purpose of visiting the flea market in return for payment of parking fee. All these led to Tin s visit to investigate the complaints. By September 2000, CKW s relationship with the District Lands Office was bad and CKW has clearly proved itself to be a notoriously bad tenant. With all these matters in his mind, it simply defies common sense that Tin would have told CKW that he was satisfied with its performance and would have encouraged CKW by saying that the tenancy would continue into 2005 and beyond. Indeed Tin s evidence is that he was not satisfied with CKW s performance because of its serious and persistent breaches of the Tenancy Agreement. When Wong s and Ong s evidence is tested against the Lands Department s internal guideline and practice, Wong s and Ong s evidence is also incredible whereas Tin s evidence is credible. In addition to what I have said about the Instruction which makes CKW s evidence about the telephone representation incredible, the following matters are pertinent. Firstly, CKW relied on the Sung Wong Toi episode to boost its trust and confidence in Tin. However, having considered the episode in its proper setting, I consider the episode boosts the credibility of Tin more than that of Wong and Ong. Shortly after the tenancy commenced, EMSD requested for a portion of the Premises in July 2000. CKW replied by its letter dated 23 August 2000 to decline Tin s request for a revision of the boundary of the Premises. So Tin knew the STT would have to be determined at the end of May 2002 and the Premises re-tendered without the plot required by EMSD, if EMSD s demand should persist. With that incident in late August 2000 fresh in his mind when he made the visit in early September 2000, it is inconceivable that Tin would have made the alleged promise that the tenancy would be continued for a very long time. According to Wong, Tin made the representation to induce CKW to improve its management, the lighting condition and the sanitary condition of the Premises. However, the Government had power under special conditions 26 and 38 of the Tenancy Agreement to require CKW to effect the drainage and provide lighting at its own expenses and to the satisfaction of the District Lands Officer. It is well within Tin s power to demand such improvement without having to offer any inducement. Furthermore, Tin had nothing to gain by making the alleged promise. The District Lands Officer is only the Government s rental agent. Tin had absolutely no personal benefit to gain and there was no incentive whatsoever for him to make the alleged promise. On the other hand, Wong has every incentive and personal motive to lie and to benefit CKW by prolonging CKW s occupation of the Premises as admittedly CKW is making a profit out of its continued occupation of the Premises. I reject Wong s and Ong s evidence and accept Tin s evidence that he had not made any representation as alleged. Having rejected CKW s evidence, there is no representation on which CKW could found a case of estoppel. Accordingly, CKW is not entitled to the declarations sought while the Government is entitled to issue the notice to quit to terminate the tenancy upon expiry of the fixed term requiring CKW to deliver up vacant possession of the Premises to the Government on 1 June 2002. Whether the expectation or belief was encouraged by Government The above would be sufficient to dispose of the two actions. However, for completeness, I shall continue to consider the position if I had accepted CKW s evidence. The representation on both occasions, if proven, was to the effect that Tin requested CKW to increase its investment on the Premises and assured CKW that it could safely do so as the tenancy would only be terminated when the airport passenger terminal and the Premises would be repossessed for the building of a railway depot. There is no doubt that CKW incurred expenditure on the Premises. It incurred expenses in building a transformer room so as to secure electricity supply from China Light & Power Co Limited, in improving the lighting condition, in re-surfacing the Premises and in providing container type of washrooms in place of the mobile toilets. CKW claimed a total of $4.1 million had been incurred. Though the amount is in dispute, it must be substantial when compared with the annual rental of $816,000. CKW must have done so in an expectation or belief that the tenancy will be extended as a periodic tenancy on expiry of the fixed term. The question is whether this expectation or belief was created or encouraged by Tin or was created by Wong s own speculation arising from his previous experience of STTs and knowledge of the practice in the District Lands Office. Wong is very experienced with STT. He was aware of the internal guideline that on expiration of the fixed term, a tenancy may continue as a periodic tenancy with revision in rent after a term of three years if not repossessed for development, or it may be terminated and re-tendered. He may not be fully aware of the internal guideline in great detail but he was aware at least of these possibilities. As shown in his letter of protest dated 13 March 2002 after receipt of the notice to quit, Wong knew where he could have access to the Government s outline zoning plans and how to find out the progress of the Government s development. It is therefore probable that with these plans, his knowledge of the internal guideline and his past experience of STTs he speculated that CKW would stand a good chance of continuing the tenancy as a periodic tenancy after expiration of the fixed term. Despite his alleged expectation or belief that the Premises would not be repossessed until 2004 or 2005, Wong admitted he was aware that Government plans were subject to change, though he thought the development of the Premises might take place in a more distant term. Under cross-examination, he admitted that Tin never promised him that the Government would not follow its practice of issuing a notice to quit to CKW or to have the Premises re-tendered. This reflects that he did not place reliance on Tin s representation and hence his expectation or belief was not encouraged by Tin s representation. Furthermore, he said if the Premises were repossessed by the Government for development, he would have no complaint. His complaint is that the Government is seeking to repossess the Premises for re-tendering. This puts it beyond doubt that Wong accepted that Tin s promise was not binding on the Government and may not come true and he was not encouraged in that expectation or belief by what Tin allegedly represented to him. More importantly, when asked why he did not request Tin to have the representation reduced into writing or to write to Tin for his confirmation, he said he knew it was useless as the Government would not make the confirmation because the Government does not wish to be bound. So he must realise that whatever was allegedly said by Tin was never intended to be binding on the Government. He agreed that though in their official capacity officers of the District Lands Office would not confirm any promise, some friendly officers would reveal something to him if he approached them in private. He agreed that he thought what Tin told him was the Government s internal assessment of the progress of the railway depot project and that such internal planning is subject to change. Thus, his understanding of what Tin allegedly told him was no more than some Government internal information as to when the Premises would likely be required by the Government which was given to him in Tin s private capacity and was never intended to be binding on the Government. Though Ms Tsui argues that it is unusual to expect an ordinary citizen would write to the Government seeking confirmation, Wong s answers precisely exposed what was in his mind about the alleged promise. It was no more than a piece of gratuitous information given by a friendly officer which the recipient was free to act on at his peril. It was not a promise that was intended to be binding by both its maker and its recipient. Thus, even if I were to accept CKW s evidence about the representation, I am far from being satisfied that the expectation or belief that CKW would acquire an interest in continuing the tenancy as a periodic tenancy was encouraged by Tin, but that it was the result of Wong s own speculation based on his knowledge of the internal guideline and his past experience of STTs. In short, the expectation or belief was created by Wong s own speculation. As for detrimental reliance, it is obvious that Wong was very bullish about the business prospect of the Premises for its use as an amusement park and for other unauthorised uses. CKW s bullish attitude is reflected in its persistent requests since 5 June 2000 to lease an adjacent lot of land KX2129 of about one-sixth the area of the Premises. On 21 July 2000, CKW put in a tender for the lot at an annual rental of $4 million. The rental offered was about five times what it paid for the Premises i.e. thirty times that rental on a per square foot basis! CKW persistently requested in September and October 2000 and again in March 2001. Though CKW argued that the tenancy of KX2129 would permit the land to be used for paid public parking and that it had found a ready sub-tenant leasing part of the lot either from KX2129 or from the Premises for flying balloons, this does not detract from the inference that CKW was extremely bullish about the business prospect of the Premises. As was mentioned by Tin in one of his letters to CKW, about 300 cars were found parked on the Premises on one occasion in August 2000. It would not be difficult to net a monthly income of over $1 million by such unauthorised use of the Premises. An expenditure, even of $4.1 million, is insignificant compared with the business prospect of the Premises and the income CKW could obtain from the authorised as well as unauthorised use of the Premises. It could be recovered in just a few months operation, which in all likelihood would have been tolerated by the District Lands Office. Further income thereafter would be windfall. I have no difficulties in finding that the expenditure was incurred principally as a calculated business risk and not as a result of Tin s encouragement. Though Wong alleged in his witness statement that CKW was induced into incurring the expenditure because of Tin s request to improve the management of the Premises, to improve the lighting facilities in the flea market and to solve the sanitary problem of the mobile toilets, it incurred the major part of the expenditure, $2.6 million, on re-surfacing the Premises. Under cross-examination, Wong admitted that Tin did not request for the re-surfacing but he took it as an implied request arising from Tin s request to strengthen the management of the Premises and as a result of Tin s remark about the bumpy surface and protruding iron bars. He also explained that he improved the lighting facilities of the entire Premises and not just the flea market area as he treated the entire Premises as the flea market. I consider his explanations are very strained and incredible. On the totality of the evidence, CKW was extremely bullish about the business prospect of the Premises, especially if it engaged in uses which were in breach of the Tenancy Agreement, such as paid public parking. From its previous experience, it believed the tenancy would continue for a substantial period after the expiry of the fixed term until the Premises is required for development. Accordingly, it took a calculated business risk to incur the expenditure. The expenditure was not incurred as a result of any detrimental reliance on Tin s representation. The expenditure I am not going to make any finding as to the amount of expenditure CKW had incurred in improving the Premises. There are two reasons. Firstly, CKW produced receipts issued by Ming Sing Transportation Co for the re-surfacing works in the amount of $2,612,000 and by Power Protect (E & M) Engineering Co in the amount of $100,000. These two companies were shown by business registration search to have ceased operation as at the dates of the receipts. Ms Tsui offered an explanation that these two businesses have been incorporated but have inadvertently used their pre-incorporation receipts. I do not think CKW may rely on such evidence from the bar table. On the other hand, it has never been put to Wong that these receipts were fraudulent so that he can respond or adduce proper evidence in support of their authenticity. These receipts are for significant sums. The authenticity of these receipts was only raised by counsel during final submission. I disapprove of such conduct. I consider it unfair and prejudicial to reject these receipts without giving CKW an opportunity to explain or to make good its case. Secondly, as can be seen from the above, it is not necessary for me to make such a finding. Indeed, it would also be undesirable for me to do so because there will be a separate trial on the issue of quantum, in which the amount of expenditure may assume greater significance. It is better that I refrain from making any finding when it is unnecessary than to make one without the opportunity of considering some of the most important evidence. For these reasons, I refrain from making a finding on the amount of expenditure. Conclusion Having rejected CKW s evidence about the representations allegedly made by Tin, there is no evidence on which CKW could found an estoppel. Even if the representations had been made, it was no more than a piece of gratuitous information of the Government s internal assessment of the progress of its development in relation to the Premises which the recipient may act on at his own peril. It was made in Tin s private capacity and was not intended by the parties to be binding on the Government. CKW s expectation or belief that the tenancy would continue as a periodic tenancy after the expiration of the fixed term was not encouraged by the alleged representation but by its own speculation. It incurred expenditure on the Premises principally as a calculated business risk based on Wong s own speculation and not in detrimental reliance on any representation made by Tin. On whatever view of the evidence, the Government is not estopped from issuing the notice to quit to CKW to terminate the tenancy and to require CKW to deliver vacant possession of the Premises on 1 June 2002. Accordingly, CKW s action against the Government in High Court Action No 1232 of 2002 is dismissed with costs to the Government and I enter judgment in favour of the Government in High Court Action No 2293 of 2002 with costs and order CKW to deliver vacant possession of the Premises to the Government within fourteen days from the date of this Judgment and for damages to be assessed. (Anthony To) Deputy High Court Judge Mr Alan Leong SC and Ms Jennifer Tsui, instructed by Messrs Tang Tso & Lau, for CKW Company Limited Mr Mok Yeuk Chi and Mr Simon Lam assigned by Department of Justice for the Secretary for Justice PAGE - 1udk 1udk H I J K L M N O P Q R S T U V A B C D E F G H I J K L M N O P Q R S T U V i$&`G AB2@ H;vC =:K` 4T8S *`lY fz`h rLy.E _Rzd *`lY 4T8S fz`h setup hca.dot setup Microsoft Word 9.0 Judiciary Hong Kong Title Microsoft Word Document MSWordDoc Word.Document.8