China Travel Logistics and Trading Hong Kong v. China Travel Hip Kee Godown Hong Kong Ltd

HCA 693/2021

[2022] HKCFI 2510

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 693 OF 2021

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BETWEEN

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Before: Hon Cheng J in Chambers

Dates of Hearing: 7 and 8 June 2022

Date of Decision: 19 August 2022

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D E C I S I O N

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A. INTRODUCTION

1.The Plaintiff commenced proceedings on 4th May 2021, claiming against the Defendant for (inter alia):

1.1 a declaration that the Plaintiff has been at all material times from 1st January 2019 a lawful tenant of Godown No.1, 20 Winslow Street, Hunghom, Kowloon, Hong Kong (“Godown 1”) and Godown No.2, 1 Cheong Hang Road, Hunghom, Kowloon, Hong Kong (“Godown 2”) (collectively, “the Godowns”); and

1.2 an injunction restraining the Defendant from trespassing on the Godowns and unlawfully preventing or obstructing the Plaintiff’s access into, within and/or out of the Godowns, or otherwise interfering with the Plaintiff’s quiet enjoyment of the Godowns during the subsistence of the Plaintiff’s tenancy;

1.3 an injunction restraining the Defendant from removing, disposing of, transferring or otherwise dealing with the goods, commodities and/or assets stored in or located at the Godowns which were owned by the Plaintiff or which are or will come under the Plaintiff’s custody, possession or control in the course of the Plaintiff’s businesses or operations at the Godowns (“the Goods”), during the subsistence of the Plaintiff’s tenancy.

2.By summons of the same date (“the Plaintiff’s Summons”), the Plaintiff sought an interlocutory injunction against the Defendant, prohibiting it from (essentially):

2.1 preventing, obstructing, or interfering with the Plaintiff’s “quiet enjoyment of, access into, within and/or out of, occupation of, operations in, and/or usage of all and any part(s) of” the Godowns; and

2.2 from removing, disposing of, transferring or otherwise dealing with the Goods,

until trial or further order of the court.

3.In the Summons, the Plaintiffs had also sought interim interim relief pending the determination of the Summons, in the same terms as those of the interlocutory injunction being sought. On 20th May 2021, Lisa Wong J granted an order (“the Interim Order”) to the effect that that pending the determination of the Summons:

(1) the Defendant could continue to honour the leasing memoranda which it had already entered into with certain third party tenants (“the Leasing Memoranda”);

(2) the Defendant was to keep an account of all the rent and other payments it had and would collect under the Leasing Memoranda;

(3) the Defendant was to pay all the rent and other payments collected into a stakeholder’s account;

(4) save as provided for in sub-paragraphs (1) to (3) and subject to sub-paragraphs (6) to (8), the Defendant was not to:

(a) prevent, obstruct or interfere with the Plaintiff’s access into, within and/or out of all other parts of the Godowns not covered by the Leasing Memoranda (“Other Parts”) and the Plaintiff’s occupation of, operation in, and/or usage of the Other Parts;

(b) remove, dispose of, transfer or otherwise deal with the Plaintiff’s or the Plaintiff’s tenants’, subtenants’ and/or customers’ goods, commodities and/or assets stored in or located at the Other Parts;

(c) obstruct the movement of goods into and out of the Other Parts at the request of the Plaintiff, its tenants, subtenants and/or customers;

(5) the Defendant was not to have access to the public bonded warehouse on the first and third floors of Godown 2;

(6) the registration counter (“the Registration Counter”) set up by the Defendant at the entrance of Godown 2 as defined in paragraph 13(4) of the decision of Lisa Wong J dated 20th May 2021 (“the Decision”) was to continue to be maintained and operated, but jointly by the Plaintiff and the Defendant;

(7) prior registration at the Registration Counter was to be required before any goods could be deposited into or withdrawn from the Godowns;

(8) the Plaintiff and the Defendant were each to be provided, on every Monday, with a copy of the registration log compiled for the previous week.

4.The Interim Order was made on the basis that the Plaintiff would pay to the Defendant within 7 days a sum for its use and occupation of the Godowns from 1st January 2019 to 25th April 2021.

5.The Defendant subsequently issued a summons on 13th December 2021 seeking to vary the terms of the Interim Order so as to exclude the advertising space on the exterior walls of the Godowns (“the Advertising Space”) as part of the “Other Parts” to which the Plaintiff could have access (“the Defendant’s Summons”).

6.Before me for determination are the Plaintiff’s Summons and the Defendant’s Summons.

B. THE BACKGROUND

7.The background to the parties’ dispute is set out in paragraphs 4 to 15 of the Decision, which I gratefully adopt. Unless otherwise indicated, I also adopt the abbreviations used in those paragraphs.

“4. The plaintiff and defendant are both companies ultimately owned by the State Council (國務院) (“State Council”) of the Central People’s Government of the People’s Republic of China and are supervised by the State-owned Assets Supervision and Administration Commission of the State Council (國務院國有資產監督管理委員會/國資委) (“SASAC”). They presently belong to the following corporate structures:

5. As shown in the above corporate chart, the defendant is the registered owner of the Godowns.

6. By a written tenancy agreement in Chinese dated 29 April 2015 (“Tenancy Agreement”), the defendant let the Godowns (including the right to use the external walls) to the plaintiff for a term of 4 years from 1 January 2015 to 31 December 2018 (both dates inclusive) at $1,420,000 per month, payable every month before the 15th working day.

7. After the expiry of the Tenancy Agreement on 31 December 2018, the parties did not enter into any further written tenancy agreement in respect of either of the Godowns. Nevertheless, the plaintiff continued to use and occupy the Godowns. It is the plaintiff’s case that it remains a lawful tenant of the Godowns on the following further and/or alternative bases:

(1) clause 2.5 of the Tenancy Agreement which provided that “租賃期屆滿,乙方在同等條件下,享有優先續租物業的權利”;

(2) a tenancy from year to year from 1 January 2019 arising by implication of law, based on the manner in which the plaintiff had paid “rent”;

(3) an agreement (“Alleged 2019 Agreement”) reached orally in a meeting between China Chengtong (of which the plaintiff is an indirect subsidiary) and China Tourism (of which the defendant is an indirect subsidiary) in Beijing on 23 December 2019 (“2019 Meeting”), as evidenced by signed minutes of the meeting (“2019 Minutes”), under which, the plaintiffs says, the defendant could only terminate the plaintiff’s tenancy of the Godowns by giving at least 6 months’ written notice and in circumstances where the defendant had formed a concrete and clear plan for the redevelopment of the Godowns;

(4) an agreement reached by conduct of the parties, including but not limited to their previous course of dealings and/or conduct subsequent to the 2019 Meeting;

(5) a proprietary estoppel which prevents the defendant from asserting (a) that the plaintiff was not at all material times from 1 January 2019 (or any later date) a lawful tenant of the Godowns and/or (b) that the plaintiff was in wrongful and/or unlawful occupation and/or possession of the Godowns or any parts thereof.”

8. The plaintiff has, until the defendant’s protested re-entry of the Godowns on 26 April 2021, carried on the following businesses (“Businesses”) at the Godowns:

(1) The entire Godown 1 has been sublet to one Iron Mountain Hong Kong Limited (“Iron Mountain”) under a sublease dated 28 January 2019 (“IM Sublease”) for a term from 1 January 2019 to 31 December 2021 at HK$1,484,165.50 per month from 1 January to 31 December 2019; HK$1,543,552.92 per month from 1 January to 31 December 2020; and HK$1,605,295.04 per month from 1 January to 31 December 2021, exclusive of government rent and rates and all other outgoings.

(2) Turning to Godown 2, certain floors, including at least the 2 basement floors, part of the ground floor, the fourth and fifth floors, have also been sublet.

(3) Space(s) on unidentified floor(s) of Godown 2 have provided for the storage of seized goods under a contract dated 11 December 2020 (“C&ED Contract”) between the plaintiff and the Custom & Excise Department (“C&ED”) for 24 months from 1 November 2020 to 31 October 2022 (both dates inclusive) at an estimated contract price of HK$7,727,400.

(4) The plaintiff operates a public bonded warehouse (公共保稅倉庫) (“Bonded Warehouse”) for the storage of dutiable goods (alcohol and tobacco) on the first and third floors of Godown 2 under the supervision of, and licences issued by, the C&ED.

(5) The plaintiff carries on its own logistic and warehousing business on at least the second, seventh and ninth floors of Godown 2. According to the plaintiff, on average, over 2,000 cubic metres of goods belonging to the plaintiff’s customers were deposited into and released out of the warehouse operated by it out of Godown 2 on a monthly basis.

(6) The Plaintiff has also set up an office on the ground floor of Godown 2 (“plaintiff’s office”).

9. Before I turn to the events giving rise to this action, I should mention that the plaintiff admittedly did not pay rent monthly as stipulated in clause 1.3 of the Tenancy Agreement. It only paid rent sporadically and often in arrear for months or even for more than a year. In this regard, as recorded under Heading 2 of the 2019 Minutes, as at 31 December 2019, the plaintiff owed the defendant HK$77,898,512.14, which comprised (1) HK$42,398,512.14 for arrears of rent prior to 30 November 2017 and (2) HK$35,500,000 for the rent payable from 1 December 2017 to 31 December 2019, all at the rate of HK$1,420,000 per month. The plaintiff’s explanation for such poor payment record is that as at the date of the Tenancy Agreement, both the plaintiff and the defendant were still indirect subsidiaries of China Tourism; and that during the term of the Tenancy Agreement, the amounts of rent to be paid by the plaintiff to the defendant would take into account the fund flow of inter-group transfers between companies under CTS Corp and those under China Tourism. The plaintiff’s payment of rent for the Godowns was often delayed while it waited for confirmation of the net amount payable by it to the defendant after the taking of such inter-group accounts (對數), which required the co-ordination between the plaintiff and defendant and other [parties].

10. On 9 July 2020, the plaintiff paid the defendant a sum of HK$41,262,703.79, leaving HK$36,635,808.35 outstanding. In this connection, according to the plaintiff, a sum of RMB30 million, with interest in the sum of RMB1,440,000, was deposited with a company called CTS Finance Limited (港中旅財務有限公司), a subsidiary under China Tourism to the credit of a subsidiary under CTS Corp. It was agreed that such principal and interest could be used to settle the said balance due from the plaintiff to the defendant. There is, however, a dispute as to whether the plaintiff has caused any or any valid instruction to be given to the said CTS Finance Limited for the transfer of the said principal and interest to the defendant. The defendant has taken the court to some evidence which suggests the plaintiff still owes the defendant RMB30 million plus RMB1,440,000, which the defendant had chased for by letter dated 7 August 2020.

11. It is, however, common ground that the plaintiff has not paid for its use and occupation of the Godowns since 1 January 2020, whether as rent or mesne profits. To demonstrate that it has always been ready, willing and able to perform its obligations as a tenant of the Godowns, the plaintiff has offered to pay the sum of HK$17,040,000 to the defendant or into court on account of the rent payable for 2020.

12. Apart from demanding for the outstanding rent accrued under the Tenancy Agreement and payment for the plaintiff’s continued use and occupation of the Godowns thereafter, the defendant has since 2019 taken initiatives to regain possession of the Godowns. By a letter dated 30 December 2020 from the defendant’s solicitors P Y Cheung & Co (“PYC”) to the plaintiff, the defendant demanded the plaintiff to yield vacant possession of the Godowns by 4 January 2021. By PYC’s further letter dated 29 March 2021 to the plaintiff, the defendant gave the plaintiff an ultimatum to give up vacant possession of the Godowns by 6 April 2021, failing which the defendant will attend the Godowns on or after 7 April 2021 to commence lawful procedure for recovery of the Godowns. On 8 April 2021, PYC attended all individual units of the Godowns and posted up and distributed to the plaintiff’s tenants and subtenants thereat notices informing them that the Tenancy Agreement had already expired on 31 December 2018; that the defendant was taking action to re-enter the Godowns; and that they should contact the defendant within 14 days to discuss arrangements for any further use of the Godowns.

13. It is the defendant’s case that it exercised its rights under the Tenancy Agreement to re-enter and regain possession of the Godowns on 26 April 2021 by taking the following steps:

(1) PYC, the defendant’s staff (around 20 of them) and security guards engaged by the defendant (around 49 of them) (“defendant’s agents” collectively) attended the Godowns at around 10:30 am to 11 am.

(2) They entered the plaintiff’s office (on the ground floor of Godown 2) to serve notice on the plaintiff’s staff thereat and informed them that the defendant was re-entering the Godowns and requested them to leave the Godowns, which they did. (Before they left, they locked the door to the plaintiff’s office and took the key with them. The defendant has no access to this part of Godown 2.)

(3) For Godown 1, the defendant and Iron Mountain have on 26 April 2021 signed a Chinese leasing memorandum, adopting the entire IM Sublease between them.

(4) Turning to Godown 2, the defendant’s agents took control of the entrance of the building, which includes a wide entrance for vehicular access and a narrow entrance for people, by setting up a counter (“Registration Counter”) there. Persons who seek entry to Godown 2 (the plaintiff’s staff and agents included) have to register with the defendant’s agents. Provided that they have registered with the defendant’s agents first, the plaintiff’s staff and agents are free to go into, and withdraw goods from, Godown 2.

(5) The defendant has also covered up the signs and logos of the plaintiff at the Godowns and installed a new CCTV system, which works in conjunction with the existing CCTV system installed by the plaintiff. That is to say, the operation of the latter system has not been disturbed.

(6) The defendant’s agents then visited each individual unit in Godown 2 to inform the hitherto tenants and/or subtenants of the plaintiff and/or other occupants that the defendant has re-entered the Godown and to invite them to contact the defendant to discuss arrangements for their respective leases and/or subleases. Some such tenants and subtenants have already approached the defendant and signed leasing memoranda to enter into leasing arrangements with the defendant.

(7) The defendant has adopted a procedure whereby the plaintiff or its hitherto tenants and/or subtenants can enter Godown 2 and withdraw goods therefrom (提貨流程) upon reasonable notice.

(8) The representatives of the defendant (Mr Patrick Lam and Mr Cheung Chi Hung) have since 26 April 2021 liaised with the C&ED (including its Chief Supplies Officer Ms Tsang Pui Yee Sandra) on the removal of all of the seized goods of the C&ED stored at Godown 2. According to the defendant, the C&ED has indicated that it might take 2 months to complete the whole process. The C&ED has since removed some of its goods from Godown 2. It could invariably do so after registering the necessary details with the defendant’s agents.

14. Regarding the areas presently occupied by the plaintiff, in addition to the plaintiff’s office, the defendant emphasises that they are under lock and are still controlled by the plaintiff and that the defendant have not accessed, or disturbed the goods placed at, such areas, nor has it attempted to do so. The defendant specifically denies that it has threatened to remove the plaintiff’s properties at Godown 2.

15. Not surprisingly, the plaintiff complains that the defendant has adversely jeopardised and/or disrupted the Businesses at the Godowns. The harm and prejudice caused to the plaintiff is irredeemable, would be hard to quantify in monetary terms and cannot be adequately compensated by an award of damages.

(1) The defendant’s act of preventing or obstructing the plaintiff’s access to the Godowns has severely damaged the operation of the plaintiff’s logistics, warehousing and trade business and the provision of ancillary services (such as movements of goods, information management etc) to the plaintiff’s subtenants. The plaintiff fears numerous third party claims.

(2) The undue disruption to the business operations of the plaintiff’s subtenants has already caused some of them to decide to rent elsewhere.

(3) In particular, the C&ED, one of the plaintiff’s significant tenants, has expressed concern over its “inability to remove the seizure by deadline”, which “may lead to a loss and/or damage of the seizures”. The C&ED has reserved the right to terminate the C&ED Contract.

(4) The licences for the operation of the Bonded Warehouse require, inter alia, that the licensee shall be the lawful tenant of the premises for the warehouse and shall endeavour to allow all dutiable goods to be admitted into or released from the warehouse forthwith at the request of any holders of valid permits. The defendant’s denial of the plaintiff’s tenancy of the Godowns and obstruction of the plaintiff’s access to the Bonded Warehouse render the plaintiff in breach of such licensing conditions. Further, the defendant, not being a licencee, is not allowed to access the Bonded Warehouse.

(5) The defendant also threatened to remove goods and commodities which came under the plaintiff’s possession, custody and/or control and which came to be stored at Godown 2 in the course of the plaintiff’s trading and logistics business. The removal of such goods and commodities would expose the plaintiff to liability to the depositing and/or intended receiving parties if such goods cannot be collected by or delivered to the right parties within the agreed timeframe.”

8.On 21st May 2021, a day after the Interim Order, the Plaintiff made a payment of $39,523,333.33 to the Defendant pursuant to the Interim Order. The parties continue to dispute what amounts were properly owing to the Defendant by way of rent.

9.Since the time of the Decision, the Plaintiff’s use of Godown 2 has been substantially reduced.

9.1 The Plaintiff ceased using the first and third floors of Godown 2 as a public bonded warehouse since 3rd September 2021 and 3rd August 2021 respectively.

9.2 From a site visit report, with photographs, dated 8th April 2022 prepared by the Defendant, Godown 2 was found to be largely empty. The Plaintiff’s own evidence (in the 7th Affirmation of Li Shichang of 17th March 2022 (“Li 7th”)) was that there were goods only on the second and fourth floors of Godown 2, part of which were occupied by the Plaintiff’s sub-tenants. The photographs in the site visit report showed that most of the goods on the second floor had been moved out. The report also showed that:

9.2.1 about half of the fourth floor was occupied by a third party which was originally the Plaintiff’s sublessee but which had subsequently signed a Leasing Memorandum with the Defendant (as recorded in Schedule 3 to the Interim Order);

9.2.2 the Plaintiff occupied some of the fifth floor;

9.2.3 the sixth floor was almost all empty save for a few packages on the floor;

9.1.4 the seventh, eighth and ninth floors were completely empty;

9.1.5 the tenth and eleventh floors had a small amount of goods placed there by a third party sublessee of the Plaintiff;

9.1.6 the twelfth floor was used by the Plaintiff to store documents (rather than for operations).

9.2 The Plaintiff took up an alternative location for its operations at Modern Terminals Limited Warehouse Building, although the size of the venue was 38,000 square feet (as compared to the 404,884 square feet available at Godown 2). It operated a public bonded warehouse at this location.

C. THE APPLICABLE PRINCIPLES

10.The requirements for the grant of an interlocutory injunction are not in dispute. There must be a serious issue to be tried, and the balance of convenience must lie in favour of granting the injunction.

11.For the requirement that there be a serious issue to be tried:

11.1 the court needs only to be satisfied that the claim is not frivolous or vexatious: American Cyanamid Co v Ethicon Ltd [1975] AC 396 at 407G (Lord Diplock). If the opposing party seeks to show that there is no serious issue to be tried, the threshold for him to succeed is high, as it would be necessary for him to demonstrate that the claim should be struck out: Yifung Properties Ltd v Manchester Securities Corp, unreported, CACV 258/2015, 9th September 2016 at [20] (Kwan JA);

11.2 the test is not a very steep hurdle; it is irrelevant whether the court thinks that the plaintiff’s chances of success in establishing liability are 90% or 20%: Hengshi International Investments Ltd v Bayspring International Ltd, unreported, HCMP 1916/2015, 18th December 2015, at [21] (Au Yeung J).

12.As to the balance of convenience, the court will consider:

12.1 whether, if the plaintiff were to succeed at trial, he would be adequately compensated by an award of damages for the loss sustained as a result of the defendant’s continuing to do what was sought to be enjoined between the time of the application and the time of the trial;

12.2 if damages would not be an adequate remedy for the plaintiff, whether, if the defendant were to succeed at trial, he would be adequately compensated under the plaintiff’s undertaking as to damages for the loss sustained by being prevented from doing that which was sought to be enjoined between the time of the application and the time of the trial;

12.3 if there is doubt as to the adequacy of the respective remedies in damages available to either party or to both, whether the balance of convenience lies in favour of granting or refusing the interlocutory injunction.

See American Cyanamid Co at 406E-F, 408B-F, per Lord Diplock.

13.When Lord Diplock spoke of damages being an “adequate” remedy, he was not suggesting that damages should provide a perfect remedy. At the same time, there comes a point where damages as a remedy falls so far short of the perfect that the remedy can no longer be described as adequate. The boundary between the adequate and the inadequate is not a precise one. It is a matter of judicial evaluation on the evidence in any given case whether or not the boundary is crossed. If it is not crossed in relation to an applicant’s loss, an injunction will not normally be granted. See Neurim Pharmaceuticals (1991) Limited v Generics UK Ltd [2020] EWCA Civ 793 at [16] (Floyd LJ).

14.If the disadvantage to each party which cannot be compensated for in damages would not differ widely, it may not be improper to take into account the relative strength of each party’s case. However, this should only be done where it is apparent on the facts disclosed by the evidence, as to which there is no credible dispute, that the strength of one party’s case is disproportionate to that of the other party. The court is not justified in embarking on anything resembling a trial of the action on conflicting affidavits in order to evaluate the strength of either party’s case. See American Cyanamid at 409B-C.

15.The court should strive to adopt a course which appears to carry the lower risk of injustice if it should turn out to be wrong: The University of Hong Kong v Hong Kong Commercial Broadcasting Co Ltd [2016] 1 HKLRD 536 at [59] (G Lam J, as he then was).

D. SERIOUS ISSUE TO BE TRIED

16.The Plaintiff’s case is that it is a lawful tenant of the Godowns by reason of (1) a proprietary estoppel, (2) a periodic tenancy arising through an express agreement or impliedly by conduct, and (3) an entitlement to specific performance of clause 2.5 of the (2015) Tenancy Agreement.

D1. Estoppel

17.The Plaintiff has pleaded that the Defendant is estopped from asserting that the Plaintiff is not a lawful tenant of the Godowns as the Defendant had represented that the Plaintiff would be entitled to continue renting the Godowns as a lawful tenant unless and until there was a clear and concrete plan on the part of the Defendant for redevelopment of the same made known to the Plaintiff (“the Representation”). It was pleaded that this representation was contained in, or evidenced by, eight documents. It was further pleaded that the Defendant could then terminate the tenancy by giving six months’ notice.[1]

18.Much of the hearing before me was taken up with examination of these documents, by both counsel for the Plaintiff, Mr Johnny Ma[2] and counsel for the Defendant, Mr Laurence Li SC. It was Mr Ma’s submission that the history of the dealing between the parties and their parent companies since 2009 is an important part of the background to the Representation. It was Mr Li’s submission that the Representation is based on matters that were merely discussed, or at most agreed as being a basis for further negotiations; any representation which could have arisen out of the earlier documents had been overtaken by more recent documents and events.

19.Mr Ma referred to the restructuring in 2009 of the business of the group of which both the Plaintiff and the Defendant then formed part. The Plaintiff’s case is that the Godowns would continue to be owned by the Defendant, and the Plaintiff would rent the same from the Defendant. Over the years, the Plaintiff paid rent irregularly, and after taking account intra-group fund flows, and this came to be established as an agreed course of conduct. There was then a further restructuring in 2017, which resulted in the current corporate structure. It was said that the Representation arose against this background.

19.1 Prior to the transfer of shares for the restructuring, there was a meeting on 30th April 2017. The Plaintiff claims that it was attended by representatives of both the Plaintiff and the Defendant; the Defendant denies this. The minutes of the meeting recorded that “The meeting affirms: … About Hua Mao Logistic’s use of the SZ and HK warehouse, apart from those already for replanning, the warehouse shall continue to operate in the existing manner before expiration of agreement. For those after expiration, priority of use shall be given to Hua Mao according to market principles.”

19.2 There was then a supplemental agreement for the gratuitous transfer of part of the state-owned shares of CTS International Logistics Corporation Limited of May 2017 entered into between the ultimate parent companies of the Plaintiff and Defendant (“the May 2017 SGTA”). The parties agreed that “Regarding the group assets used by CTS Int’l Logistics (except those explicitly required to be replanned, redeveloped), for those before agreement expires, they shall be executed pursuant to the existing agreement. After expiry of the agreement, CTS Int’l Logistics shall have priority to use under the same conditions based on the principle of marketization.”

19.3 Mr Ma then relied on the minutes of a meeting of 3rd January 2018 (“the 2018 Minutes”). Again, it was said that this was attended by the Defendant’s representatives, including Tao Xiao Bin, who has sworn affidavits for the Defendant in these proceedings. Under the heading “Preliminary opinions of the meeting”, it was recorded that “…China Tourism Group promises to allow China Logistics Group to continue occupying and using the properties unless and until there is a concrete and detailed plan on the part of the China Tourism Group for redevelopment of the properties”.

19.4 There was then a letter drafted by the Defendant or otherwise by the Defendant’s group, dated 26th December 2018, intended to be sent to the Plaintiff’s group, stating that “…On condition that the above outstanding sum being discharged, having considered the previous course of dealings, history and background between our company and yours as well as the tenancy agreement already in place regarding Godown No.1 & 2, we agreed that, upon expiration of the original tenancy agreement on 31st December 2019, to let the Godown No.1 & 2 to your company on same terms…” Disputes thereafter arose between the two sides, and the Defendant asked the Plaintiff to vacate the Godowns.

19.5 The dispute was said to have culminated in a meeting of 23rd December 2019, between China Chengtong[3] (of which the Plaintiff is an indirect subsidiary) and China Tourism (of which the Defendant is an indirect subsidiary). The minutes of the meeting (that is, the 2019 Minutes) recorded that in relation to the Godowns, the parties had reached a “consensus” that “China Tourism Group will give an appropriate transition period. The specific transition period for each warehouse and plot will be discussed on a case-by-case basis. In principle, CTS International Logistics cannot affect the subsequent development and revitialization of land and assets by China Tourism Group. If China Tourism Group has a clear purpose for the land and assets during the transition period, it shall notify CTS International Logistics in writing six months in advance, and CTS International Logistics must support it. If CTS International Logistics decides to terminate the tenancy, 6 months advanced written notice to China Tourism Group is required. China Tourism Group must support it.”

20.Mr Li submitted that these events could not have given rise to the Representation.

20.1 After the May 2017 SGTA, there was an agreement relating to “The subsequent matters after the completion of transfer of part of state-owned shares of CTS International Logistics Corporation Ltd” between the China Tourism Group and the China Chengtong Group. The agreement referred to the Tenancy Agreement. It recorded that “At the time of expiry of tenancy on 31 December 2018, the tenancy will not be renewed and China Travel Trading shall leave Godown 1 and 2 of Hip Kee by itself. If China Travel Trading does not leave Godown 1 and 2 of Hip Kee by itself, Hip Kee Company has right to adopt compulsory measures (compulsory measures include but not limit to compulsory vacation and application for court injunction etc) to force China Travel Trading to leave, and has right to receive 3 times of the rentals at the rate under the original tenancy as compensation for the illegal occupation of Godown 1 and 2 of Hip Kee after expiry of the contract term.”

20.2 The 2018 Minutes did not constitute an agreement; there was to be further negotiation and agreement.

20.3 The 2019 Minutes did not constitute an agreement, and was merely a record of a meeting; the parties to the meeting did not include the Plaintiff or the Defendant, but only companies which were their holding or intermediate holding companies; in any event, the agreement was one of principle only, with each warehouse subject to further discussion.

20.4 There was then a report made by the Plaintiff to an organ of the State Council of 13th April 2020. The report referred to the consensus recorded in the 2019 Minutes, but also noted that back in May 2019, “no consensus was reached”. It remained the case that there was no consensus in 2020 as the Plaintiff was asking for the State Council to intervene.

21.On the basis of the above, I am not able to conclude, as Mr Li invited me to, that there is no serious issue to be tried. There has been a history of dealings between the parties, during which the Defendant, or its direct or indirect holding companies, have made various statements, the precise legal implications of which cannot be definitively determined at this stage. The extent to which the attendees at meetings represented the parties to the present dispute; the precise meanings to be placed on particular words or phrases in the original Chinese documents;[4] whether the position in any particular document was superseded by, or otherwise took precedence over, the position set out in another document; and whether any statements made by or on behalf of the Defendant could in law constitute sufficient representations or assurances to the Plaintiff are not matters which can be determined in a summary way on the affidavit evidence.

22.Mr Li also submitted that the Plaintiff’s claim of proprietary estoppel could not succeed as the Plaintiff was not coming to court with clean hands (not having paid rent on time), and as it was not unconscionable for the Defendant to resile from any representations made. The merits of these allegations also turn on the factual disputes to which I have referred above, and on the factual issues referred to below as to whether there was an arrangement between the parties that the Plaintiff could pay rent on an irregular basis, and I cannot simply conclude at this stage that there is no serious issue to be tried on the Plaintiff’s claims.

D2. Periodic tenancy

23.The Plaintiff submits in the alternative that it has an express or implied yearly tenancy by reason of its course of dealings with the Defendant. It is said that the Defendant, through its controlling company, issued a demand for payment of rent pursuant to the 2019 Minutes, that the Plaintiff paid rent for 2019 on 9th July 2020, and that the Defendant then allowed the Plaintiff to continue occupying the Godowns. It is said that it was the Defendant which acted in breach of the yearly tenancy by purporting to issue a notice to quit on 9th June 2021 (“the Notice to Quit”) without providing a clear and concrete plan for redevelopment.

24.The Defendant says that taking the Plaintiff’s case at its highest, any tenancy agreement between the parties after 1st January 2019 was terminated by the Plaintiff’s repeated delay or failure in paying rent, which constituted a repudiatory breach of contract accepted by the Defendant.

25.The Plaintiff’s answer is that the parties had all along dealt with each other on the basis that the Plaintiff could pay rent on an irregular basis, taking into account the fund flow of inter-group transfers between the two groups of companies. There is, moreover, an issue as to whether the Defendant’s re-entry on 26th April 2021 constitutes an acceptance of repudiation (as the Defendant says) or an attempt at enforcement of its right to forfeit the tenancy for non-payment of rent (as the Plaintiff says). In the latter case, the Plaintiff says that it is entitled to relief from forfeiture under s.21F of the High Court Ordinance, Cap.4 (“HCO”), citing Worldwide Flight Services Holdings SA Royal Caribbean Cruises Ltd v Kai Tak Cruise Plaza Ltd at [2019] 4 HKLRD 56 at [36]. The Defendant says that it only sought to terminate the tenancy for the Plaintiff’s repudiatory breach, and did not seek forfeiture.

26.Whether or not the parties had an arrangement that the Plaintiff could pay rent on an irregular basis, and whether the Plaintiff’s delay in paying rent amounted to a repudiatory breach of contract, is not an issue I can determine on the affidavit evidence at this stage.

26.1 Mr Li pointed to the Plaintiff’s internal records showing that early on in the tenancy, the Plaintiff paid on a more regular, monthly basis, but that then payment became more sporadic and irregular. He submitted that irregular payment was not evidence of a course of dealing. However, the Plaintiff pointed to a demand made on 9th March 2020 for payment pursuant to the 2019 Minutes, and the Defendant’s acceptance of rent of $41,262,703.79 from the Plaintiff on 9th July 2020 and its acknowledgment that the remainder of the sum demanded could be set off against the RMB30 million in the PRC account maintained with CTS Finance Limited. The Plaintiff also pointed out that the invoice of 5th March 2020 asked for rent only up to 2019 and not for any of the months in 2020. Indeed, no complaint about non-payment of rent for 2020 was made until the Defendant’s solicitors’ letter of 30th December 2020.

26.2 The Plaintiff further points to a letter from its camp to the Defendant’s camp of 25th May 2021 in which it referred to its attempt in about August 2020 to transfer the RMB30 million in accordance with the agreed arrangement, but was unable to do so because CTS Finance Limited (from the Defendant’s camp) had frozen the amount. The affidavit evidence from the Plaintiff, which is not contradicted by the Defendant, is that this was explained to the Defendant’s camp at the time, and no complaint was made about the non-payment of the RMB30 million prior to the commencement of proceedings.

27.As to whether the Plaintiff is precluded from relying on s.21F HCO, the Defendant’s solicitors PYC issued letters on 30th December 2020 and 29th March 2021 complaining of the Plaintiff’s failure to pay rent and mesne profits and to deliver up vacant possession, and demanding vacant possession and threatening legal proceedings to recover possession. I agree with the Plaintiff’s submission that this stance may be consistent with both a claim for termination of the tenancy by acceptance of repudiation and an exercise of the right to forfeit the tenancy: see Worldwide Flight Services Holdings, supra, at [37], [38].

28.In any event, even on the footing that the Defendant only claimed termination of the tenancy by acceptance of repudiation, it is arguable that s.21F HCO still applies: see Super Century Investment Ltd v Advance Ltd & anor [2005] 1 HKC 480 at [11] (although the point was not there argued). Furthermore, the Court of Appeal has left open the issue of whether a common law remedy may co-exist with a forfeiture remedy in Well Century Holdings Ltd v Leung Kam Yu [2003] 2 HKLRD 653 at [44] to [46]. It is not appropriate to resolve difficult points of law on an application for an interlocutory injunction, particularly where they may turn on disputed questions of fact: cf. Derby & Co v Weldon (No.1) [1990] Ch 48 at 58F-G, 63G-H.

29.I therefore cannot agree that there is no serious issue to be tried regarding the Plaintiff’s claim to a periodic tenancy.

D3. Priority for renewal under clause 2.5 of the Tenancy Agreement

30.The Plaintiff has pleaded that it is entitled to renewal of the Tenancy Agreement by virtue of clause 2.5 therein (which provides for the Plaintiff to enjoy priority in the renewal of its tenancy), and that the Defendant is in breach of this clause in refusing to renew with the Plaintiff. The Defendant does not rely on an alternative construction of the clause, but rather, on its submissions that in any event, there has been non-payment of rent such that the Plaintiff must be in repudiatory breach. I have addressed this point above.

31.I therefore agree that there is a serious issue to be tried as to whether, in the circumstances which transpired, clause 2.5 entitles the Plaintiff to a renewal of the Tenancy Agreement.

E. ADEQUACY OF AWARD OF DAMAGES FOR THE PLAINTIFF

32.The Plaintiff’s argument is that without the injunction sought, its logistics and godown business will be severely disrupted, so that damages would not be an adequate remedy for it. It says that “Godowns 1 & 2 are pivotal to the success of the businesses of the China Logistics Group (in particular, P) in Hong Kong, and it is difficult to find a replacement commensurate with its capacity, location, accessibility, and proximity to client network.”[5] In the 3rd Affirmation of Li Shichang of 3rd September 2021 (“Li 3rd”), it was said that without an interlocutory injunction, “the Plaintiff’s businesses at the [Godowns] will be at the risk of being destroyed, and the Plaintiff will suffer irreparable harm…the [Godowns] are not easily replaceable. Rather, they are an integral part and/or significant to the commercial viability of the Plaintiff’s businesses by reason of their location, accessibility, proximity to client network, size, and/or capacity.”[6]

33.First, whilst the Plaintiff says that “Godowns 1 & 2 are pivotal” to its business and difficult to replace, it is in fact only part of the Godowns that are used for the Plaintiff’s logistics and godown business.

33.1 It is not disputed that Godown 1 was simply sublet to Iron Mountain, and it was not involved in the Plaintiff’s operations. The Plaintiff could be adequately compensated in damages for any loss of rental suffered.

33.2 It is also not disputed that the Advertising Space was sublet to third parties. Again, the Plaintiff could be adequately compensated in damages for any loss of rental suffered.

33.3 Insofar as the Plaintiff carried out a logistics and warehousing business, this was at Godown 2. In Li 3rd, it was said that “The Plaintiff and its related companies operate their businesses at and occupy around 10 floors in Godown No.2 and only sublet around 2 floors to third parties (i.e., 4/F and 5/F).”[7] Li 3rd also exhibited a table setting out the use of each floor of Godown 2.

33.3.1 The south side cockloft, east ground floor and east cockloft, some storage areas in basement 2, the fourth floor, and the fifth floors, were sublet. For these, the Plaintiff could be adequately compensated in damages for any loss of rental suffered.

33.3.2 The first and third floors were used by the Plaintiff or other entities in the China Logistics Group as a public bonded warehouse. The evidence is that the Customs and Excise Department have gazetted the cessation of such use, and it is not suggested that there would be any resumption during the currency of the parties’ dispute. In the circumstances, even if an injunction were to be granted, this would not restore the Plaintiff to its former position in respect of these two floors in any event; the Plaintiff would eventually still have to seek its remedy, if any, in damages against the Defendant.

33.3.3 The twelfth floor was used by the Plaintiff to store documents, rather than to carry out any logistics or warehousing business.

33.3.4 It appears that a number of the other floors (second, seventh) were occupied by entities related to the Plaintiff, but not the Plaintiff itself. The precise position is not clear, given that Li 3rd stated that “The Plaintiff and its related companies operate their businesses at and occupy around 10 floors in Godown No.2” (emphasis added). It has not been made clear how, and to what extent, the Plaintiff (rather than the related entities) would suffer loss which could not be compensated for in damages if no injunction were to be granted so as to enable such entities to re-occupy Godown 2.

33.3.5 The ninth floor was apparently used by an entity related to the Plaintiff, but not the Plaintiff itself. Again, it has not been made clear why damages would not be an adequate remedy for the Plaintiff if no injunction were to be granted to enable a third party to re-occupy Godown 2.

33.3.6 This leaves the sixth, eighth and tenth to eleventh floors as being used by the Plaintiff for its logistics and warehousing operations.

34.In other words, even if there is any issue of inadequacy of a remedy in damages, this relates to only part of the Plaintiff’s occupation of the Godowns.

35.In any event, I am not satisfied that damages would be an inadequate remedy for the disruption to the Plaintiff’s logistics and godown business. The Plaintiff cited Rock Garden Ltd v The Covent Garden Market LP [2002] EWHC 1666 (Ch) for the proposition that difficulty of quantification can mean that damages will not be an adequate remedy. Specifically, Mr Ma’s submission was that on an application for an interlocutory injunction, the court asks whether damages can be easily calculated with confidence, and if not, then one concludes that damages would not be an adequate remedy. I do not agree that Neuberger J was seeking to lay down such a principle. If one reads the whole of [35], what he was saying was that (1) in one sense, the adequacy of damages could be seen as part of the considerations of the balance of convenience; (2) on the facts of the case before him, the balance of convenience was all one way (in favour of the grant of an injunction); (3) therefore, and in that specific context, unless one could be confident that any damages would be very simple to calculate and recoverable, the injunction should be granted. Rock Garden was simply a case where the court took the view that damages would an inadequate remedy because, on the facts, they would be very difficult to assess: in the absence of the injunction sought, access to the claimant’s nightclub business might be entirely blocked, or might be possible through an alternative route, but that alternative route was not ideal, might be unlawful, and would also harm another of the claimant’s businesses; the impact on the claimant’s income and goodwill from longer customer queues would be difficult to assess.

36.Moreover, it is not clear to me what the difficulty in assessing the damages in the present case would be. Reference was made to [22] of the Decision, but what Lisa Wong J was saying was that comparatively speaking, quantification of the Plaintiff’s damage would be more complicated than quantification of the Defendant’s damage (and even then only by a margin); she did not say that it would very difficult. In fact, in [21(2)], Lisa Wong J expressly indicated that she was not persuaded by the Plaintiff that quantification of its loss would be unusual or difficult; the court was accustomed to such types of assessment of damages. In the present case, the Plaintiff has kept records of what it says are the reductions in import freight flows caused by the Defendant’s wrongful re-entry, and was able to produce these records in evidence. I do not agree with Mr Ma’s submission that it would be very hard, if not impossible, to calculate the loss arising from the disruption to the Plaintiff’s business.

37.On this basis alone, I consider that the injunction sought by the Plaintiff should not be granted. Nevertheless, for completeness, I will go on to consider the rest of the parties’ submissions.

F. ADEQUACY OF UNDERTAKING AS TO DAMAGES FOR THE DEFENDANT

38.The Defendant argues that the Plaintiff’s cross-undertaking in damages would not be adequate given the Plaintiff’s poor record of paying rent and lack of assets. However, I do not consider that this point takes the matter further.

38.1 As noted above, what the parties’ agreed arrangement was as to timing of payment of rent is an issue to be tried.

38.2 Whilst the Defendant calculates its damages to be in the region of $264m to $293m (by way of rent) and $114m to $130m (by way of mesne damages) assuming a further three years elapses before trial, the Plaintiff points to the fact that it had undistributed profits in excess of $100m as at 31st March 2021, and that its latest audited financial statements of August 2021 showed that it had total assets of some $450m and net assets of $236m. The Defendant says that most of these consisted of receivables from other related companies rather than cash or cash equivalents, but there is nothing to suggest that these companies, which are state-owned, would not be able to pay. Furthermore, the Defendant does not seek fortification of the cross-undertaking.

G. BALANCE OF CONVENIENCE

39.I take the view that the course which would involve the least risk of injustice at the end of the day would be to refuse the injunction sought.

40.Even if the Plaintiff was a lawful tenant at the time as it claims, there is no suggestion that the tenancy cannot be terminated by the Defendant.

40.1 On the Plaintiff’s primary case, the Representation entitles it at most to a tenancy until there is a clear and concrete plan on the part of the Defendant for redevelopment of the Godowns, and on giving six months’ notice of the same. The Defendant says that on 24th May 2021, it passed a written board resolution which set out the clear and concrete plan for taking back the Godowns from the Plaintiff and leasing them out at market rates and/or using them for various specified purposes of the Defendant’s group. It further says that a notice to quit was issued to the Plaintiff by PYC dated 9th June 2021, attaching the aforesaid board resolution and thereby giving notice of the same to the Plaintiff. Even though the Plaintiff disputes the validity of the notice on the grounds that the resolution did not amount to a clear and concrete plan for redevelopment,[8] this is a matter for trial, and there would be nothing to stop the Defendant from issuing further such notices in the meantime.

40.2 Insofar as any periodic tenancy is concerned,[9] the Defendant says that it has already issued multiple notices to quit, on 30th December 2020, 29 March 2021 and 9th June 2021.

40.3 As regards clause 2.5 of the (2015) Tenancy Agreement, it is not suggested that any renewal of the tenancy would be exclude the Defendant’s right to terminate the tenancy on the terms of the Alleged 2019 Agreement (that is, on six months’ notice).

41.The other matter which I bear in mind is the extent of the Plaintiff’s use of the godowns for its logistics and warehousing business, which it says has been disrupted by the Defendant. The Plaintiff says that the status quo prior to the Defendant’s re-entry should be restored, so that it can continue its quiet enjoyment of the Godowns pending trial; its logistics business has been severely disrupted by the Defendant. However:

41.1 even prior to the Defendant’s re-entry on 26th April 2021, a significant portion of the Godowns was not used by the Plaintiff for its own logistics operations, but for sub-letting, as summarised at paragraph 33 above;

41.2 as for the current state of occupation of the Godowns, the Plaintiff has substantially reduced its use of even Godown 2, as summarised at paragraph 9 above, even though it has had the benefit of the Interim Order in place. The site visit report of 8th April 2022 showed Godown 2 to be largely empty. As mentioned above, there is nothing to suggest that the first and third floors will resume their former use as a public bonded warehouse whilst the parties’ dispute is ongoing, even if the Plaintiff re-occupies the Godowns.

42.The reality is that the Plaintiff never used the entirety of the Godowns for its own operations, and currently occupies a relatively small part of the Godowns; and whatever the merits of the dispute between the parties may be, the Defendant would in any event be able to serve notice to terminate the Plaintiff’s tenancy within a relatively short period of time, quite possibly before trial. In such circumstances, it seems to me that the course which would involve the least risk of injustice at the end of the day would be to refuse the injunction sought, rather than to mandate the Defendant to allow the Plaintiff to re-occupy the Godowns now.

43.Whilst the Plaintiff says that the Defendant’s obstruction and breach of the Interim Order is to blame for the reduction in the Plaintiff’s business operations at Godown 2, and that the Plaintiff had to mitigate its loss by setting up alternative operations elsewhere, for which it should not be punished, the Plaintiff can seek redress in damages at the end of the day should it turn out that the injunction has been wrongly refused. Agritrade Resources Limited v Ashok Kumar Sahoo [2022] HKCA 280 is not authority for the proposition that a defendant’s conduct justifies the grant of an injunction in the plaintiff’s favour in such circumstances.

44.My conclusion is reinforced by the fact that the Plaintiff has not made any payment of rent or mesne profits for the period of its occupation after the date of the Interim Order of 20th May 2021, despite PYC’s demand of 21st October 2021. I note that the Plaintiff’s skeleton indicates a qualified willingness to pay rent “On the condition that D does not obstruct P’s use of Godowns 1 & 2 (and after taking into account P’s damages for D’s breach of the Interim Injunction)”. However, the Plaintiff stops short of offering to pay unconditionally for what would undoubtedly be its occupation and use of the Godowns, for as long as the resolution of the disputes as to the rights and wrongs of the parties’ respective conduct is pending. It is unclear what is proposed to be paid “after taking into account P’s damages for D’s breach of the Interim Injunction”. Acceding to the Plaintiff’s course might result in effectively granting the Plaintiff, whose status as a tenant is disputed, rent-free occupation and sub-letting of the Godowns pending trial. I cannot see this as a course that would involve the least risk of injustice at the end of the day.

H. DISPOSITION

45.I therefore dismiss the Plaintiff’s Summons.

46.I dismiss the Defendant’s Summons, which the Defendant did not pursue, and which in any event falls away in the light of my dismissal of the Plaintiff’s Summons.

47.For the avoidance of doubt, the Interim Order is discharged. I give liberty to apply in relation to matters arising out of the discharge.

48.I make an order nisi that the costs of and occasioned by the Plaintiff’s Summons be to the Defendant, and that the costs of and occasioned by the Defendant’s Summons be to the Plaintiff.

Mr William Wong SC (on 8 June 2022 only) leading Mr Johnny Ma and Mr Michael Ng, instructed by Tung, Ng, Tse & Lam, for the Plaintiff

Mr Laurence Li SC leading Mr Anthony Chan and Mr Jonathan Ng, instructed by P Y Cheung & Co, for the Defendant