Dragon Workshop Ltd and Another v. Treasure Express Industrial Ltd and Another

DCCJ 2497/2018 and DCCJ 4006/2018
(Consolidated)

[2022] HKDC 251

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NOS 2497 OF 2018 AND 4006 OF 2018

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BETWEEN

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(Consolidated by Order of Registrar Ho dated 16 October 2018)

Before:  His Honour Judge KC Chan in Chambers (Paper Disposal)

Date of the 1^st and 2^nd defendants’ written submissions:  23 February 2022

Dates of the 1^st and 2^nd plaintiffs’ written submissions:  3 & 16 March 2022

Date of the 1^st and 2^nd defendants’ written reply submissions:  22 March 2022

Date of Decision:  25 March 2022

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DECISION

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1.This is a landlord and tenant dispute.  The amounts in dispute are small.  The plaintiffs claim HK$72,855.27.  The defendants counterclaim HK$40,144.73.  The trial is scheduled to commence on 9 August 2022 with an estimated length of 4 days.

2.On 11 February 2022, the defendants issued a summons (“D’s Summons”)  to amend their Re-Amended Defence and Counterclaim (“RADC”)  which was opposed by the plaintiffs.  On 15 February 2022, I directed that D’s Summons be disposed of on papers without an oral hearing.  Upon the defendants’ application and on 9 March 2022, I allowed (on nisi basis which the plaintiff did not seek to vary)  the defendants to amend D’s Summons by substituting a revised version of their draft Re-Re-Amended Defence and Counterclaim and gave the plaintiffs an opportunity to lodge supplemental written submissions.

3.Having considered the parties’ written submissions, this is my decision.

The background and parties’ pleaded case

4.The background, the parties’ disputes and their respective case, as gleaned from the present pleadings can be succinctly stated as follows.

5.The 1^st and 2^nd plaintiffs, respectively as owner of Portion A of Unit B on the Ground Floor and Unit B on the First Floor (“P1’s Premises”)  and as owner of Unit A on the First Floor, both of Legend Court, No 33 Yin Chong Street, Kowloon (“P2’s Premises”)(together “the Premises”), by 2 respectively leases both dated 13 June 2014 (“the 2 Leases”), let to the 1^st defendant P1’s Premises and P2’s Premises for 3 years expiring on the same date on 14 June 2017 at the respective monthly rent of HK$55,000 and HK$45,000.

6.The 2 Leases contained a Clause 4(d)(ii)  and a Clause 16, both were in identical terms in the 2 Leases:-

Clause 4(d)(ii)

“At the expiration or sooner determination of the term hereby created if the Tenant shall have paid all rent and other moneys payable hereunder and if there shall be no breach of any of the said covenants, restrictions, stipulations and conditions on the Tenant’s part to be observed and performed the Landlord will repay to the Tenant the said sum without any interest thereon within fifteen (15)  days after the Tenant shall have surrendered to the Landlord vacant possession of the Premises or within fifteen (15)  days of the settlement of the last outstanding claim by the Landlord against the Tenant in respect of any breach, non-observance or non-performance of any of the said covenants, restrictions, stipulations and conditions whichever is later.”

Clause 16

“In consideration of the Tenant agreeing to take up the lease of the Premises under the terms herein contained, the Landlord hereby undertake to assign and transfer the food licence and liquor licence to the Tenant or its nominee(s)  upon execution of this Lease provided that the Tenant shall re-transfer and re-assign at its own costs and expenses the food licence and liquor licence to the Landlord or its nominee(s)  (as the case may be)  upon the expiry or sooner determination of the term of lease hereby created.”

7.It is common ground that, pursuant to the 2 Leases, the 1^st defendant paid to the plaintiffs rental deposits in the respective sums of HK$165,000 and HK$135,000 (together “the Deposits”), while the plaintiffs duly assigned and transferred the food licence (general restaurant licence no. 2262808725)  and liquor licence (liquor licence no. 5262822230)  in respect of the Premises (together “the Licences”)  to the 2^nd defendant and one Ms Ma Siu Ling respectively as nominees of the 1^st defendant.

8.It is the plaintiffs’ case, but not admitted by the defendants, that the 2^nd defendant signed 2 guarantees, both dated 13 June 2014, one in favour of each of the respective plaintiffs, guaranteeing the 1^st defendant’s indebtedness, if any, under the 2 Leases.

9.It is common ground that upon the imminent expiry of the 2 Leases, vacant possession of the Premises was delivered up to the respective plaintiffs by the 1^st defendant on 30 June 2017.

10.The plaintiffs’ pleaded case in gist is:-

a.  Soon after on 7 July 2017, the plaintiffs entered into a preliminary tenancy agreement of the Premises with a new tenant (“New Tenant”).

b.  Despite requests, the 1^st defendant refused to re-transfer and re-assign the Licences before the plaintiffs have returned the Deposits to the 1^st defendant.

c.  On 3 August 2017, the plaintiffs, without admitting any obligation, returned the bulk of the Deposits in the sum of HK$200,000 to the 1^st defendant; with the outstanding balance of HK$40,144.73 (apparently after some deductions, and the amount of the balance is not disputed)  being retained by the plaintiffs until the completion of the re-transfer and re-assignment of the Licences.

d.  The 1^st defendant nevertheless still refused to transfer or re-assign the Licences.

e.  Therefore, the New Tenant engaged a consultant (“the Consultant”)  to obtain anew a general restaurant licence and a liquor licence in respect of the Premises.  The Consultant advised the New Tenant that the toilet in the Premises had been altered.  In order to obtain the new licences, the New Tenant incurred consultant fees in the sum of HK$78,000 and renovation costs to re-instate the toilet in the sum of HK$35,000.  The New Tenant deducted the said sums totalling HK$113,000 from the rent payable to the plaintiffs.

f.  The plaintiffs therefore suffered loss in the sum of HK$113,000.  Deducting therefrom the balance of the Deposits at HK$40,144.73, the plaintiffs now claims against the defendants HK$72,855.27.

11.The defendants’ pleaded case in gist is:-

a.  From 7 July 2017 to 28 July 2017, the 1^st defendant has complied with the requests by the plaintiffs and the New Tenant by sending the original Licences and copies of other necessary documents to the plaintiffs and/or the New Tenant for the purpose of re-transferring and re-assigning the Licences.

b.  However, since 28 July 2017, nothing was heard from the plaintiffs or the New Tenant.

c.  The defendants admitted that the 1^st defendant has received partial refund of the Deposits in the sum of HK$200,000 but denied all other related allegations by the plaintiffs.

d.  On or about 10 August 2017, the 2^nd defendant discovered “that the internal decoration/partition of [the Premises] had been modified : (1)  The store room was modified so that it could accommodate more customers; (2)  An additional room was built at the reception area; and (3)  The original door to the toilet had been removed and used the fire exit door instead”[1].

e.  The defendants then requested the plaintiffs to restore the internal decoration “as the plans of [the Premises] previously approved by Food and Environmental Hygiene Department were different from the modified internal decoration/partition of [the Premises]”[2]. The plaintiffs refused to do so.

f.  Such alterations from the approved plan are contrary to section 34D of Food Business Regulation Cap 132X.

g.  The defendants did not alter the toilet as alleged, which was in the original state when vacant possession of the Premises was returned to the plaintiffs.

h.  The 1^st defendant therefore denies any breach of the 2 Leases and counterclaims for the return of the balance of the Deposits at HK$40,144.73.

The amendments and discussion

12.In this round of amendment, the defendants also seeks to introduce a number of sundry amendments to touch-up their RADC.  These are not opposed. What is opposed is the amendment to paragraph 2 of the RADC to introduce the plea that 2 terms, which are identical mutatis mutandis in respect of the 2 Leases, ought to be implied into each of the 2 Leases.

13.As they are identical mutatis mutandis, it suffices for me just to quote the amendment sought in respect of one of the 2 Leases:-

“(a)  Lease A is subject to the following implied terms and/or contractual duties and/or obligations which were implied by law and/or in order to give business efficacy to Lease A and/or to reflect the true intention of the parties and/or as an obvious inference from the express terms of Lease A:

(1)  The 1^st Plaintiff would not hinder or prevent the 1^st Defendant from, or do any acts which would cause additional obstacles and/or difficulties to be imposed on the 1^st Defendant in executing the re-transfer and re-assignment of the food licence and liquor licence to the 1^st Plaintiff or its nominee as provided for in Clause 16 of Lease A;

(2)  The 1^st Plaintiff would cooperate with and do all such things necessary to facilitate the 1^st Defendant in executing the re-transfer and re-assignment of the food licence and liquor licence to the 1^st Plaintiff or its nominee as provided for in Clause 16 of Lease A.”

14.Following from this plea of implied terms, the defendants also seeks to add a new sub-paragraph (f1)  to paragraph 2 of the RADC to plead essentially that the matters earlier pleaded in that paragraph constituted breach of the alleged implied terms and that the failure to execute the re-transfer and re-assignment of the Licences were caused by these matters.

15.The main ground of opposition advanced by the plaintiffs was that particulars should be given of the material facts which formed the basis giving rise to the implication of those terms.  It is then submitted that since no such particulars are given, the amendment ought not be allowed.

16.I do not accept that insufficient particulars are given, in view of the contents of the terms sought to be implied and the undisputed background and factual circumstances of this case.

17.In their submissions, the plaintiffs do not dispute that “it is well established that a term will often be implied that a party would not act to prevent or frustrate the performance of the contract by the other party” (Good Return (BVI)  Limited v Wickham Ventures Limited [2020] HKCFI 2287 §49).  In my view, the implied terms now sought to be introduced fall within that well established instance where such a term, or a term with similar effect, will often be implied.  It seems to me quite obvious from the undisputed factual background already pleaded that there is a sufficient basis, without the need for further particulars, to support the defendants’ case for the implication of a term, in order to give business efficacy and/or as something that goes without saying, to the effect that the plaintiffs, whether by themselves or those acting under them, would not perform any act that would frustrate or prevent the re-transfer and re-assignment of the Licences by the 1^st defendant to the plaintiffs.

18.Moreover, the defendants have already pleaded in the present RADC

a.  in paragraph 8(g), the particulars of the alleged alterations to the Premises in or about August 2017;

b.  in paragraph 8(h), that the alleged alterations were modifications different from the original approved plan; and

c.  in paragraph 8(l), that Section 34D of Food Business Regulation Cap 132X prohibits certain alterations or additions to the matters specified in the plan save with the approval of the Director.

19.Thus, the allegations concerning how the plaintiffs had been “causing additional obstacles and difficulties” to the re-transfer and re-assignment of the Licences were already pleaded with particulars.

20.In my view therefore, the amendments sought would serve the purpose of enabling the real questions in controversy to be determined.  Also, in my view the amendments sought, read together with the existing RADC, sufficiently inform the plaintiffs the defendants’ case (among others)  that (a)  because of certain alterations made in or about early August 2017 (whether by the plaintiffs or the New Tenant), there were “additional obstacles and/or difficulties” in re-transferring and re-assigning the Licences, and/or (b)  new permission in writing of the Director would in any case be required; with the attendant consequence that they were not in breach and/or the amount claimed by the plaintiffs would have to be, or were, incurred by the plaintiffs or the New Tenant by reason of these alterations and not her alleged breach.

21.Lastly, it was argued by the plaintiffs that this amendment introducing the alleged implied terms and their breach amounts to an allegation of dishonesty on the part of the plaintiffs and therefore requires clear and detailed particulars in support.  There is no basis to say that the amendment introduces an allegation of dishonesty and I accordingly reject this argument.

22.In all, in the exercise of my discretion I would allow the amendments sought.

Disposal

23.I give leave to amend the RADC per the revised draft and make an order in terms of paragraphs 1 and 2 of D’s Summons.  There is also leave for the defendants to file the Re-Re-Amended Defence and Counterclaim with the Registry in this GAP.  There will be consequential leave to the plaintiffs to file and serve a Re-amended Reply and Defence to Counterclaim within 14 days after the re-opening of the Registry.

24.As this is an application for amendment of pleadings, the plaintiffs should have the costs of the application.  However, it seems to me that the plaintiffs should not have contested this application.  I therefore order that the costs of D’s Summons be to the plaintiffs but the defendants shall have the costs of the written submissions.  This costs order is given on nisi basis to be made absolute within 14 days unless any party applies to vary within that time.

25.I thank Ms Liu and Messrs Huen & Partners for their assistance.

Huen & Partners, for the 1^st and 2^nd plaintiffs

Ms Abigail Liu, instructed by K H Mak & Co Solicitors, for the 1^st and 2^nd defendants