Worldwide Flight Services Holdings S.A. Royal Caribbean Cruises Ltd and Another v. Kai Tak Cruise Plaza Ltd and Another

CACV 393/2018

[2019] HKCA 828

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 393 OF 2018

(ON APPEAL FROM HCA 1157 OF 2016)

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J U D G M E N T

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Hon Au JA and Lisa Wong J (giving the judgment of the court):

A.   INTRODUCTION

1.The Government as landlord has leased to the plaintiffs, among others, the premises (“the Premises”) known as Shop Nos S201 and S202 on the 2^nd floor of the Kai Tak Cruise Terminal (“the Terminal”).

2.By way of a sub-lease (“the Sub-Lease”), the plaintiffs sub‑let the Premises to the 1^st defendant for a term of nine years odd commencing on 15 October 2013 and expiring on 28 May 2023 for the 1^st defendant to operate a duty free style store (“the Shop”) there.  In this judgment, unless otherwise stated, references to numbered clauses are to clauses of the Sub‑Lease.  The 2^nd defendant, by way of a deed of guarantee (“the Guarantee”) dated 20 November 2013, guarantees the 1^st defendant’s performance of its obligations under the Sub-Lease.

3.It is common ground that the 1^st defendant has since March 2015[1] defaulted in its payment of rent and rates to the plaintiffs[2]. The plaintiffs’ solicitors, by way of a letter dated 18 April 2016 (“the Letter Before Action”), purported to terminate the tenancy pursuant to the Sub‑Lease with immediate effect by accepting the 1^st defendant’s repudiatory breach of the Sub-Lease, alternatively exercising the right of forfeiture[3] under clause 11.01(a).  However, the 1^st defendant has not delivered vacant possession to the plaintiffs despite their demand.

4.The plaintiffs commenced these proceedings on 3 May 2016 against the defendants for the delivery of vacant possession of the Premises, payment of (among others) the outstanding rent and rates up to the termination of the Sub-Lease, and thereafter mesne profit until delivery of vacant possession, together with interest and damages.  The plaintiffs then, after close of pleadings, sought summary judgment against the defendants under their summons dated 11 September 2017 (“the O14 Summons”).

5.By way of a judgment dated 18 July 2018 (“the Judgment”), Ng J (“the Judge”) granted summary judgment against the defendants as sought.  The defendants appealed the Judgment[4] and later applied for an interim stay of execution of the Judgment pending appeal[5].  This court (Poon and Au JJA) granted an interim stay of the Judgment on 17 January 2019.

6.This is the hearing of the appeal.

B.   THE JUDGMENT

7.As mentioned above, the defendants do not deny that the 1^st defendant has failed to pay the monthly rent and quarterly rates for the Premises since 1 March 2015 (save for the rent for September 2015).  However, in defence, the defendants principally contend that the plaintiffs have failed to provide or cause the HKSAR Government to provide infrastructural support, including but not limited to traffic arrangements for bringing customers to and from the Terminal, to facilitate the 1^st defendant’s business.  Further, the defendants say the plaintiffs have also placed blockages and barriers between the Departure Hall of the Terminal (“the Departure Hall”) and the Premises in such a way that prevented cruise passengers from leaving the Departure Hall to visit the Shop[6].  The defendants say the plaintiffs’ said failure to provide the facilitative infrastructure and traffic arrangements and placement of the blockages and barriers are in breach of a collateral agreement they had formed with the defendants, or an implied term of the Sub‑Lease.  Further, such acts also amounted to derogation from the grant of the Sub‑Lease.  The defendants therefore further counterclaimed against the plaintiffs for damages for over $107 million of operating deficits, over $40 million of wasted renovation and decoration costs and other miscellaneous losses[7].

8.In opposing the O14 Summons, the defendants argued that the above grounds of defence and counterclaim raised the following triable issues:

(1)   Whether there was an express agreement, or alternatively, an implied condition in the Sub‑Lease, that the plaintiffs would provide or cause the Government to provide infrastructural support, including traffic arrangements for bringing customers to and from the Terminal to facilitate the 1^st  defendant’s business (“the express agreement/implied condition issue”).

(2)   Whether the plaintiffs were in derogation from the grant of the Sub‑Lease (“the derogation from grant issues”) in:

(a)   failing to provide the infrastructural support (“the failure to provide infrastructure issue”);

(b)   placing blockages and barriers that stopped passengers from leaving the Departure Hall and visiting the Shop (“the blockages issue”).

(3)   Whether the quantum claimed by the plaintiffs was inflated, as (a) the defendants said the parties subsequently agreed a rent-free period from 1 March to 31 August 2015[8], and (b) the plaintiffs should account to the defendants for the deposit (“the Deposit”)[9] paid pursuant to clause 3.01 (“the quantum issue”).

(4)   Whether the defendants raised a bona fide counterclaim or a plausible counterclaim that would ground leave to defend (“the counterclaim issue”).

9.The Judge found that this was a simple landlord and tenant dispute, and that none of the defendants’ said grounds of defence raised any triable issues:

(1)   In relation to the express agreement/implied condition issue, the Judge concluded that the question of whether there was the alleged express agreement was not triable since (a) the defendants failed to condescend to particulars of when, where, and between whom the alleged express agreement was made or the consideration for it, (b) the terms of the alleged agreement were “highly ambiguous”, and (c) in any event, the alleged express agreement was inconsistent with clauses 9.03 and 13.11 (which provided that the Sub-Lease constituted the entire agreement between the parties).  As to the case on implied condition, the Judge concluded that some of the requirements necessary for finding an implied term as laid down in Kensland Realty Ltd v Whale View Investment (2001) 4 HKCFAR 381 at [23][10] were not satisfied even assuming in favour of the defendants’ allegations, and hence the defendants failed to raise a triable case on implied condition.  See [12] ‑ [19] of the Judgment.

(2)   In relation to the derogation from grant issues:

(a)   Under the failure to provide infrastructure issue, the Judge similarly concluded (for the same reason for deciding the implied condition issue against the defendants) that the defendants failed to show it was the obvious intention of the parties that the plaintiffs should provide or cause the Government to provide the “infrastructural support” or “traffic arrangements”, so as to give the transaction a minimum of efficacy and value, as required by the principle summarised in Platt v London Underground Ltd [2001] 2 EGLR 121 at 122 per Neuberger J (as he then was) (an authority relied on by the defendants’ leading counsel at the hearing before the Judge[11]). See [20] ‑ [22] of the Judgment.

(b)   Under the blockages issue, the Judge regarded the allegations not triable as (i) the defendants failed to condescend to particulars of the basis on which they claimed it was the plaintiffs who placed the blockages or barriers and of when, how often and for how long they were so placed, (ii) the point was not even pleaded in the Amended Defence and Counterclaim, (iii) the defendants failed to explain why these alleged blockages and/or barriers “may” amount to a derogation from grant.  The judge was of the view that the defendants’ submission that “whether those were in fact blockages or who placed them needed to be explored at trial” was exactly what Megarry VC referred to in Lady Anne Tennant v Associated Newspapers Group Ltd [1979] FSR 298 as “surmise and Micawberism” and the defendants were not entitled to leave to defend by putting forward such a case.  See [23] - [26] of the Judgment.

(3)   For the quantum issue, the Judge rejected this as triable as (a) there was no evidential basis and the defendants failed to condescend to particulars as to when, where, how and between whom the alleged agreement for a rent-free period from 1 March to 31 August 2015 was entered into, (b) in any event, the alleged rent-free period was inconsistent with the terms of the Sub-Lease and could not survive the entire agreement clauses set out in clauses  9.03 and 13.11, and (c) further, clause  3.01 provided that the Deposit was only repayable to the 1^st defendant if there was no breach of the Sub-Lease and after the delivery of vacant possession of the Premises to the plaintiffs.  Thus, the plaintiffs were under no obligation to deduct the Deposit at this stage.  See [27] - [33] of the Judgment.

(4)   In relation to the counterclaim issue, the Judge rejected the same as (a) insofar the counterclaim was based on the same issues raised in the defence, it was not triable as he had concluded, and (b) in relation to the rest of the bases relied on (as set out in footnote 7 above), they were only bare assertions and the defendants failed to condescend to particulars.  Thus, the Judge found that the counterclaim was not credible or did not have any sufficient legal basis to support the same.  See [34] ‑ [36] of the Judgment.

10.The Judge therefore gave final and interlocutory judgment against the defendants as claimed by the plaintiffs which included: (1) delivery up of vacant possession of the Premises, (2) payment of $7,650,705.59 being the sum total of various liquidated amounts that accrued before the date of the Letter Before Action (18 April 2016) including $7,245,830.64 for the base monthly rental from 1 March 2015 to 30 April 2016 (except September 2015) and the rates from January to June 2016, (3) interest on such accrued rent and rates at the contractual rate of 3% over The Hongkong and Shanghai Banking Corporation Limited’s prime rate under clause 11.02 from 1 May 2016 to 18 July 2018 (date of the Judgment) and thereafter at judgment rate until payment in full, (4) mesne profit at the respective base monthly rental rate as provided in the Sub-Lease from 1 May 2016 until vacant possession of the Premises was delivered, and (5) damages for the breach of the Sub-Lease to be assessed.

C.   THIS APPEAL

C1.   The grounds of appeal

11.In the Notice of Appeal, the defendants raised the following grounds of appeal:

(1)   The Judge ought to have found that there was a triable dispute with regard to the defendants’ case that the plaintiffs have derogated from their grant and breached clause 8.01(a)[12], by not allowing cruise passengers to leave the Departure Hall to visit the Shop and by obstructing cruise passengers’ means of access from the Departure Hall to the Shop thereby interfering with the 1^st defendant’s trade (Ground 1).

(2)   The Judge ought to have found that there was a triable dispute with regard to the defendants’ case that the plaintiffs have derogated from their grant and breached clause 8.01(a) by making arrangements with nearby shopping malls for shuttle bus services to take cruise passengers from the Terminal to those malls thereby interfering with the 1^st defendant’s trade (Ground 2).

(3)   The Judge ought to have found that there was a triable dispute with regard to the defendants’ case that the plaintiffs have breached clause 8.01(b) by failing to maintain and keep or cause to be maintained and kept the main structure of the Premises and every part of such main structure in proper and tenantable repair and condition so as to prevent water from entering into the Premises, thereby causing damage to the floor and sales counter in the Shop (Ground 3).

(4)   The Judge ought to have found that, with regard to the defendants’ case that the plaintiffs have derogated from their grant and breached clause 8.01(a) and (b) (as per Grounds 1, 2 and 3 as set out above), the defendants have shown an arguable set-off, which ought to be tried (Ground 4).

(5)   The Judge ought to have found that, with regard to the defendants’ case that the plaintiffs have derogated from their grant and breached clause 8.01(a) and (b) (as per Grounds 1, 2 and 3 as set out above), the defendants have shown a bona fide counterclaim arising out of the same subject-matter as the action and connected with the grounds of defence, which ought to be tried (Ground 5).

12.After the court granted the interim stay of execution of the Judgment, on 20 March 2019, the court further directed that the parties shall be prepared to address the court at the substantive hearing of the appeal issues relating to relief against forfeiture provided under section 21F (“section 21F”) of the High Court Ordinance (Cap 4).

13.Subsequent to that, the defendants by way of a summons (“the NOA Amendment Summons”) dated 9 April 2019 asked for leave to amend the Notice of Appeal to add the following ground of appeal (“Ground 6”) based on section 21F:

“6. The Learned Judge’s sealed copy Final and Interlocutory Judgement, dated 18 July 2018, being, inter alia, an order for possession for non-payment of rent, fails to comply with the requirement of s.21F(3)(b) of the High Court Ordinance, Cap.4, in that there is no order that possession of the Premises be returned to the Plaintiffs at the expiration of such period, but not being less than 7 days from the date of the order, as the Court thinks fit, unless within that period the 1^st Defendant pays into court all the rent in arrear and such sum as the Court shall direct on account of the costs of this action (relief against forfeiture). This failure to comply with the requirement of s 21F(3)(b) renders the order for possession invalid or vitiated.”

14.The plaintiffs opposed the NOA Amendment Summons.  But at the same time, they took out a summons dated 16 April 2019 (“the Respondents’ Notice Summons”) seeking leave to file a Respondents’ Notice to rely on various grounds to rebut Ground 6 in case the defendants were allowed to rely on it.

15.We have at the hearing granted leave to the defendants to amend the Notice of Appeal to add Ground 6, and also leave to the plaintiffs to file the Respondents’ Notice, with costs in the cause of the appeal.  It will become apparent from the discussion under heading C3 below that we regard Ground 6 (the argument of which requires no new evidence or does not give rise to any prejudice to the plaintiffs) to be not only reasonably arguable, but also determinatively in favour of the 1^st defendant.

16.For the purpose of this appeal, the defendants have also taken out (a) a summons dated 8 November 2018 (“the New Evidence Summons”) seeking to adduce and rely on new evidence relating to the blockages and barriers issue, and (b) a summons dated 8 November 2018 (“the Re-Amendment Summons”) seeking to re-amend the Amended Defence and Counterclaim to put in further pleas and particulars concerning the blockages and barriers issue.  We have allowed the Re‑Amendment Summons with costs in the cause[13] but dismissed the New Evidence Summons with costs to the plaintiffs at the hearing.  Again, we will explain our reasons below for these decisions.

17.We now turn to consider the grounds of appeal.

C2.   Grounds 1 to 5

18.These grounds can be conveniently considered together and disposed of quickly.

19.In substance, the defendants argue under these grounds that the Judge ought to have found that there are triable issues on:

(1)    Whether the plaintiffs, in breach of clause 8.01(a) (which provided for quiet possession and enjoyment of the Premises), have derogated from their grant under the Sub-Lease by reason of:

(a)    placing the blockages and barriers, and

(b)    their failure to provide or cause to be provided the relevant infrastructure and traffic arrangements;

(2)    whether the plaintiffs have breached clause 8.01(b) in failing to keep the Premises in proper and tenantable repair and condition, and

(3)    whether all the derogation from grant and/or breaches of the Sub-Lease have resulted in damage and loss to the defendants, which constitute proper defences to the plaintiffs’ claim for the overdue rent by way of set-off or counterclaim.

20.Leaving aside for the moment the Judge’s reasons in finding the defendants’ various allegations not worthy of belief and hence rejecting them as triable defences, we are of the view that as a matter of law, even if any of these factual allegations are triable, they cannot amount to a valid defence to non-payment of rent under the Sub-Lease.

21.First, as the Judge has rightly observed at [10] of the Judgment, it is trite law that a tenant’s covenant to pay rent is regarded as independent of all other covenants or obligations under a lease.  A tenant’s obligation to pay rent therefore does not depend on the landlord’s compliance with its obligations under the lease: Golden Sunrise Ltd v Lee Kwok Hung [2005] 1 HKC 466 at [37] - [39] and [41] per Chu J (as she then was).

22.In the premises, the defendant simply has no defence in law for not paying rent under the Sub-Lease even if it is triable as to whether the plaintiffs have themselves been in breach of clause 8.01(a) (and even if, without deciding, that amounts to derogation from grant) or a collateral agreement or an implied condition.

23.Second, it is now well established that the right to set off can be excluded by clear words.  In particular, it has been held that a covenant to pay the rent “without any deduction or set off whatsoever” excludes the right of set-off.  See: Woodfall, Landlord and Tenant, paragraph 7.115 and the authorities cited therein.

24.In the present case, the obligation to pay rent is provided for under clause 2.01 as follows:

“The Rent for the Premises for the Term shall be payable by the Tenant to the Landlord exclusive of rates, utility and other charges and outgoings in Hong Kong Currency per calendar month in advance on the first day of each and every calendar month without deduction, set off or claim whatsoever, the first of such payments shall be apportioned according to the number of days then unexpired in the month in respect of which such payment is made.” (emphasis added)

25.In our view, any right to set-off against the rent payable under the Sub-Lease by reason of the alleged breaches by the plaintiffs as landlord (whether of the Sub-Lease or another collateral agreement) is clearly excluded by the exclusion provided for in clause 2.01 by way of the italicized words as quoted above.

26.In the premises, even if the defendants’ various allegations of the plaintiffs’ breaches do raise triable disputes of fact, they cannot seek to set off the outstanding rents by way of a right of set-off or the pleaded counterclaim.  Hence, there is simply no defence in law against the plaintiffs’ claim for the outstanding rent and rate and other outgoings under the Sub-Lease and vacant possession (subject to the question of relief against forfeiture which will be discussed below).

27.The Judge is therefore correct in concluding that the defendants failed to raise any triable defence to the plaintiffs’ claim and in granting summary judgment (subject to the questions of relief against forfeiture and the award of mesne profit without trial).  We therefore reject Grounds 1 to 5.

28.On the other hand, for the present purpose, we will not go so far (as the Judge did) to say that the defendants’ factual allegations made in relation to the plaintiffs’ alleged breaches are not even triable.  It must also be noted that the counterclaim has not been struck out.  In the circumstances, we believe the defendants are entitled to proceed with their counterclaim for damages against the plaintiffs based on the various allegations of the plaintiffs’ breaches.

29.It is also for these above reasons that we have allowed the defendants’ Amendment Summons but dismissed the New Evidence Summons[14].

C3.   Ground 6

30.Section 21F provides relevantly as follows:

“21F. Relief against forfeiture by action for non-payment of rent

(1) Subject to subsection (1A), this section has effect where a lessor is proceeding by action in the Court of First Instance to enforce against a lessee a right of re-entry or forfeiture in respect of any land for non-payment of rent.

(1A) …

(2) If, within the time prescribed by rules of court for acknowledging service of the writ by which the action was commenced, the lessee pays into court all the rent in arrear and the costs of the action, the action shall cease, and the lessee shall hold the land according to the lease without any new lease.

(3) If—

(a) the action does not cease under subsection (2); and

(b) the Court at the trial is satisfied that the lessor is entitled to enforce the right of re-entry or forfeiture,

the Court shall order possession of the land to be given to the lessor at the expiration of such period, but not being less than 7 days from the date of the order, as the Court thinks fit, unless within that period the lessee pays into court all the rent in arrear and such sum as the Court shall direct on account of the costs of the action.

(3A) …

(4) …

(5) Subject to subsection (6), if—

(a) within the period specified in the order; or

(b) within that period as extended under subsection (4),

the lessee pays into court—

(i) all the rent in arrear; and

(ii) the sum directed to be paid on account of the costs of the action,

he shall hold the land according to the lease without any new lease.

(6) …

(7) If the lessee does not—

(a) within the period specified in the order; or

(b) within that period as extended under subsection (4),

pay into court—

(i) all the rent in arrear; and

(ii) the sum directed to be paid on account of the costs of the action,

the order may be enforced and so long as the order remains unreversed the lessee shall be barred from all relief.

…” (emphasis added)

31.It is now well established that under section 21F(3)(b), the court is mandated by statute to provide for relief against forfeiture when ordering vacant possession in an action by a lessor to enforce against a lessee a right of re-entry or forfeiture for non-payment of rent for the first time.  It does not require or depend on the parties applying for it.  See: Bullen v Tam Yee Ni [1998] 2 HKC 207 at 211D per Liu JA; Ramadour Industries Ltd v Bullen Christian Anthony (CACV 19/2016, 15 May 2017, Lam VP, Yuen and Kwan JJA) at [14.1] ‑ [15] per Yuen JA.

32.There is no dispute that the Judge did not provide for relief against forfeiture when giving summary judgment for vacant possession against the 1^stdefendant in the present case.  The failure to comply with the requirement under section 21F(3) renders the order for possession for non-payment of rent invalid and vitiated[15].

33.Ms Teresa Wu for the plaintiffs however raises a number of contentions to say why the order for possession should not be set aside on this ground.

34.First, counsel submits that section 21F simply does not apply in the present case, as the present action is not an action by the plaintiffs to enforce a right of re-entry or forfeiture.  Ms Wu contends that the action has been proceeded with before the Judge only on the basis that the plaintiffs have terminated the Sub-Lease by accepting the 1^st defendant’s repudiatory breach of the Sub‑Lease, which is highlighted by the following:

(1)   The Letter Before Action, which stated that the 1^st defendant had evinced an intention not to be bound by the Sub-Lease and committed a repudiatory breach of it, which the plaintiffs accepted, or alternatively, the plaintiffs exercised their right of forfeiture under clause 11.01(a).  The plaintiffs thereby demanded for delivery of vacant possession and payment to be made on or before 30 April 2016.

(2)   The plaintiffs seek payment of rentals up to 30 April 2016 but thereafter mesne profit from 1 May 2016 onwards both in the Statement of Claim at paragraph 9 and under paragraph 1 of the O14 Summons.

(3)   The plaintiffs’ Order 14 skeleton argument proceeded on the same basis, seeking immediate vacant possession and damages for breach (see paragraph 6 thereof).

(4)   The defendants’ Order 14 skeleton argument acknowledged the plaintiffs’ claim against the 1^st defendant being based on repudiatory breach of the Sub-Lease and accepted that plaintiffs were entitled to terminate the Sub-Lease as they did (see paragraphs 7 and 16 thereof; see also [11] of the Judgment).

(5)   The parties advanced their arguments along those lines in the hearing before the Judge.  The defendants made clear to the Judge that the ultimate issue was whether, given the 1^st defendant’s default and the plaintiffs’ entitlement to terminate the Sub-Lease, there were “other reasons” that the matter should go to trial (see [6] and [11] of the Judgment).

(6)   The Judge in the end concluded that it was a simple landlord and tenant dispute and the defendants had failed to raise any triable issue and ordered summary judgment in terms of paragraph 1 of the O14 Summons (see [37] ‑ [38] of the Judgment).

35.With respect to Ms Wu, we are not persuaded by these submissions.

36.As accepted by Ms Wu in her submissions above and in court, it is clear from the Letter Before Action as well as the Statement of Claim[16] that the plaintiffs are claiming against the 1^st defendant for vacant possession on the alternative bases of their acceptance of the 1^st defendant’s repudiatory breach of the Sub-Lease or exercise of their right of forfeiture under clause 11.01(a).  The said manner in which the plaintiffs put its claim in these documents therefore does not make good the contention that the present action is not one for enforcement of the plaintiffs’ right of forfeiture.

37.Similarly, subject to what we will say at [46] - [51] below regarding the final judgment for mesne profit, the fact that the plaintiffs are claiming mesne profit from 1 May 2016 onwards does not mean that the action is not premised on an exercise of right of forfeiture.  By definition, that is a right to forfeit the Sub-Lease, and hence once and if it is held that the plaintiffs have successfully exercised that right, the lease is forfeited and thereby terminated[17].  Thereafter, if the 1^st defendant refused to deliver up vacant possession and remained at the Premises, it became a trespasser and is liable to pay mesne profit as a form of damages.  The claim for mesne profit is thus not inconsistent with the action being based on forfeiture of the Sub-Lease.

38.For the same reason, Ms Wu’s reference to the plaintiffs’ skeleton argument and the defendants’ skeleton argument before the Judge is also misplaced:

(1)   In the plaintiffs’ skeleton argument at paragraph 6, it is stated that the claims “are for immediate possession, outstanding rent, rates and charges, mesne profits, interest and costs” (see Statement of Claim, Reply & Defence to Counterclaim…)”.  This, as explained above, is equally consistent with the claims being mounted on the exercise of the right of forfeiture.

(2)   At paragraph 16 of the defendants’ skeleton argument before the Judge, it is stated that: “…there is no dispute that the Defendants defaulted in paying rent and other charges since 1 March 2015.  The Defendants accept that the Plaintiff was entitled to terminate the Sub-Lease as it did.”  Again, as explained above, this is equally consistent with a termination by the exercise of the right to forfeit the Sub-Lease.

39.Further, in this respect, it is incorrect for Ms Wu to say that the Judge has in the Judgment clearly proceeded to deal with and give summary judgment in favour of the plaintiffs based only on the plaintiffs’ acceptance of the 1^st defendant’s repudiatory breach of the Sub-Lease.

40.The Judge set out what he understood as the basis of the plaintiffs’ claim at [6] of the Judgment as follows:

“6. The Plaintiffs claim that, in repudiatory breach of the Sub-Lease, the 1st Defendant has failed to pay the monthly rent and rates since 1 March 2015 (save for the month of September 2015). The Plaintiffs further claim that by a letter dated 18 April 2016 from their solicitors to the 1st Defendant’s solicitors, the Plaintiffs accepted the 1st Defendant’s repudiation of the Sub-Lease, alternatively exercised their right under Clause 11.01(a) to terminate the Sub-Lease with immediate effect. These two dates, as well as the events in question, are not disputed by the Defendants. Notwithstanding the termination of the Sub-Lease, the 1st Defendant has so far failed to deliver vacant possession of the Premises back to the Plaintiffs. This is also not in dispute.” (emphasis added)

41.The Judge therefore expressly acknowledged that the plaintiffs’ claim for vacant possession was premised on the basis that the plaintiffs accepted the repudiatory breach of the Sub-Lease, and “alternatively exercised their right under clause 11.01(a) to terminate the Sub-Lease with immediate effect”. This is consistent with the plaintiffs’ position pleaded in the Statement of Claim and the parties’ skeleton arguments as mentioned above.

42.Nowhere in the Judgment has the Judge indicated that he had confined his consideration to only the case of termination by acceptance of a repudiatory breach of the Sub-Lease.  The Judge’s conclusion that the matter was a “simple landlord and tenant dispute” at [37] of the Judgment is equally consistent with his accepting the plaintiffs’ claim on the basis that the defendants had raised no triable defence to the plaintiffs’ exercise of their right of forfeiture.

43.For all these reasons, we reject Ms Wu’s contention that this action is not one whereby the plaintiffs seek to enforce their right of forfeiture for non-payment of rent.  As a result, section 21F applies and the Judge, with regret, erred in law in failing to provide for relief against forfeiture in ordering vacant possession as mandated under section 21F(3)(b).  In this respect, we must however point out that it is common ground that neither the defendants nor the plaintiffs had raised with the Judge at the Order 14 hearing the question of relief against forfeiture under section 21F.

44.At this hearing, and upon the court’s inquiry, the defendants through leading counsel have confirmed that they would still be prepared and able to meet the conditions set out in section 21F (relating to the payment into court of all the rent in arrears up to the delivery of possession by the 1^st defendant and a sum on account of the costs of the action) (“Relief Conditions”) within three weeks of the handing down of this judgment.  In the premises, the defendants succeed on this ground of appeal to the extent that they shall have relief against forfeiture if the Relief Conditions, to be more particularly discussed at [52] - [57] below, are met.

45.However, we see no reason why the following parts of the Judgment should be disturbed: the order for payment of the Electricity Charges, paragraph (1) insofar as it relates to the payment of outstanding rates from 1 January to 30 June 2016, paragraph (2) for the payment of an adjustment in the rates payable by the 1^st defendant in respect of the period of 15 October 2013 to 30 December 2015, paragraphs (3) to (5) for the payment of interest on the outstanding rent, rates and adjustment for rates at the aforesaid contractual interest rate, paragraph (6) for the plaintiffs’ legal costs for the issuance of two demand letters, and paragraph (8) for damages for breach of the Sub-Lease to be assessed.

C4.   Mesne profit

46.It would have been noted that we have excluded paragraph (7) of the Judgment, which provided for the payment by the 1^st defendant of mesne profit from 1 May 2016 to the date when it delivers vacant possession of the Premises at the rates of base monthly rent set out in paragraph 1(a)(iii) to (vii) of Part V of the First Schedule to the Sub‑Lease plus 1/3 of the quarterly rates payable in respect of the Premises.

47.This is so because if the Relief Conditions are met, the arrears of rent paid into court by the 1^st defendant would have covered the period in respect of which the 1^st defendant was ordered under paragraph (7) of the Judgment to pay mesne profit.

48.Even if the Relief Conditions are not fulfilled, the award of mesne profit would essentially have been premised upon the 1^st defendant having continued to be in occupation of the Premises as a trespasser after the termination of the Sub-Lease on 18 April 2016 (the date of the Letter Before Action) so that it was necessary for the plaintiffs to recover possession by action.

49.However, on the evidence before us, we have difficulty with accepting, without any investigation, the plaintiff’s allegation of wrongful occupation of the Premises by the 1^st defendant from 1 June 2016.  In this regard, according to paragraph 12 of the Affidavit of Bent Jeffrey Cowne filed on 11 September 2017 on behalf of the plaintiffs in support of the O14 Summons:

“In any event, there is no legitimate or realistic interest for the 1^st defendant to maintain the tenancy covered by the Sub-Lease or to assert its right to continue to stay given that it has deserted the Premises and has failed to use and occupy the same since 1 June 2016.” (emphasis added)

50.It is trite that a landlord’s right of forfeiture or re-entry is exercisable by action or otherwise.  It can be effected, if the circumstance permits, by peaceable physical re-entry by, for example, an act as simple as changing the locks of the premises provided that the intention to forfeit is present.  See Woodfall, Landlord and Tenant, paragraphs 17.087 - 17.089 and the authorities cited therein.

51.In the instant case, the plaintiffs’ own evidence that the 1^st defendant has deserted, and ceased to use or occupy, the Premises since 1 June 2016, in our view, raises a triable issue as to whether the 1^st defendant has wrongfully continued to use and occupy the Premises as a trespasser for which the plaintiffs should be compensated by an award of mesne profit from 1 June 2016.  An explanation is called for, but not given, as to why the plaintiffs did not simply physically re-enter the Premises on 1 June 2016 and instead chose to recover possession by action herein.

D.   DISPOSITION

52.We will allow the appeal on Ground 6.  We will set aside the order for delivery of possession of the Premises, paragraph (1) (insofar as it relates to arrears of rent), paragraph (7) and the order for the defendants to pay the plaintiffs’ costs under the Judgment.  In place of these parts of the Judgment, we will make an order incorporating relief against forfeiture pursuant to section 21F(3).

53.In addition to all the rent in arrears (up to date to the payment into court), which we will leave to the parties to work out and agree under section 21F(3)(b), the court shall direct the tenant to pay into court a sum on account of the costs of the action.  For that purpose, pursuant to the court’s direction made at the hearing, the plaintiffs’ solicitors have provided a statement of costs for a total sum of $1,672,511 in relation to all the costs incurred by the plaintiffs:

(1)   $838,682 as costs incurred below.

(2)   $833,829 as costs incurred in this appeal (including all the costs incurred in dealing with the Amendment Summons, New Evidence Summons, the defendants’ summons seeking to leave to file further affidavit dated 20 November 2018, the NOA Amendment Summons and the Respondents’ Notice Summons).

54.In our view, globally looked at, the plaintiffs’ costs as stated is not reasonable or proportionate.  The starting point is, as the plaintiffs’ counsel has rightly repeatedly reminded us and as the Judge has observed, this is a simple landlord and tenant dispute.  Save for the section 21F point, all the allegations made by the defendants in relation to the plaintiffs’ breaches do not constitute valid defences in law, and hence, the plaintiffs’ successful summary judgment application.  When viewed against such a context:

(1)   The costs of $838,682 incurred from the commencement of the action up to the conclusion of the summary judgment application is on the face of it unreasonable and disproportionate.  Although we find the total counsel’s fee of $216,000[18] to be reasonable, the costs of $622,682 as professional charges by solicitors for a case of the present nature is not reasonable or proportionate[19].  For the purpose of section 21F(3), we would make allowance for solicitors’ costs below at $400,000.  The costs to be paid into court by the defendants for the action below should therefore be $616,000 ($216,000 + $400,000), rounded up to $620,000.

(2)   The costs of $833,829 (including total counsel’s fees of $446,500 and other professional charges and disbursement of $387,329) incurred for the purpose of the appeal is also unreasonable.  The professional hours stated to have been spent in preparing the appeal are excessive[20], in particular as counsel and solicitors were involved in the hearing before the Judge.  This court of course notes that there are quite a number of interlocutory applications made by the defendants, including the stay application, in this appeal. Notwithstanding this, the costs stated to have been involved are still in our view unreasonable[21]. Taking all these into account, we would globally direct $450,000 to be paid into court on account of the costs incurred in the appeal (including all the interlocutory applications).

55.We would therefore direct that the defendants shall pay into court the sum of $1,070,000 ($620,000 + $450,000) on account for the costs of the plaintiffs’ action.

56.In the premises, in allowing the appeal and setting aside the order for delivery of possession of the Premises, paragraph (1) (insofar as it relates to arrears of rent), paragraph (7) and the order for the defendants to pay the plaintiffs’ costs under the Judgment, we would further order that:

(1)   Possession of the Premises to be given to the plaintiffs at the expiration of 21 days from the date of this order, unless within that period the defendants pay into court all the rent in arrears up to the date of payment, and $1,070,000 on account of the costs of the plaintiffs’ action.

(2)   Upon the failure of the defendants to comply with paragraph  (1) above, judgment against the 1^st and 2^nd defendants in the terms of paragraph (1) of the Judgment and for the payment of costs of the plaintiffs’ action, including the costs of the summary judgment application, shall stand to the full extent and together with judgment that the costs of this appeal shall be to the plaintiffs to be taxed if not agreed. There should, however, be unconditional leave to the defendants to defend the plaintiffs’ claim for mesne profit.

Mr Nicholas Cooney SC and Mr Marco K W Li, instructed by Chiu, Szeto & Cheng, for the 1^st and 2^nd defendants (appellants)

Ms Teresa Wu, instructed by Deacons, for the plaintiffs (respondents)