Ocean Elderly Service Ltd v. United Wealth Global (HK) Ltd

HCA 347/2023

[2025] HKCFI 2676

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 347 OF 2023

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BETWEEN

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D E C I S I O N

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Introduction and Undisputed Background

1.By Summons dated 12 August 2024 (“the Summons”), the Defendant (“D”) seeks summary judgment and/or interim payment on its Counterclaim against the Plaintiff (“P”).

2.The following affirmations have been filed in relation to the Summons:

(1) Affirmation of Wong Tung Hung (“Wong 1^st”) on 12 August 2024 on behalf of D in support;

(2) Affirmation of Lau Sin Ting (“Lau”) on 8 November 2024 on behalf of P in opposition; and

(3) 2^nd Affirmation of Wong Tung Hung (“Wong 2^nd”) on 29 November 2024 on behalf of D in reply.

3.D is the owner of the premises known as Shop No. 133 on the 5^th Floor and Shop No. 201 on the 6^th Floor of Tsui Lam Shopping Centre, No. 11 Tsui Lam Road, Tseung Kwan O, New Territories, Hong Kong (“the Premises”).

4.By a Provisional Tenancy Agreement (in Chinese) dated 17 November 2021 (“PTA”), P agreed to rent the Premises from D. Originally, it was anticipated that the term of the tenancy would commence on 1 April 2022 and a formal tenancy agreement be signed on or before 30 December 2021.[1]

5.There is no real dispute that by the time of signing the PTA, also evident from the clauses in the PTA[2], that P had told D that it intended to operate an elderly home at the Premises[3].

6.As the previous tenant of D rented the Premises to operate a Chinese restaurant, it was also known to D that P had to convert the Premises to operate an elderly home which included installing openable windows (“the Windows”)[4].

7.Furthermore, it was D’s contractors (“Ngai Shing”) who carried out the installation of the Windows (although D’s case is that it did so in accordance with the directions of P’s Authorised Person (“Alliance”) engaged in December 2021[5]), from around February 2022 and it was not completed until 29 August 2023.[6]

8.On 30 May 2022[7] or 1 June 2022[8], P executed the formal tenancy agreement (“the Lease”) which was subsequently dated 30 June 2022. The term was stated to be for four years commencing on 16 June 2022, or such other date as may be notified by the Lessor (D) upon giving fourteen days’ prior written notice to the Lessee (P)[9].

9.On 1 June 2022, the Premises were handed over by D to P as evidenced by the Handover Form[10]. However, it was noted in the Check List of Standard Fittings and Fixtures section of the Handover Form that there were works in relation to the Windows being carried out and inspection would be done after the works were completed: 單位內窗戶待工程完工後再驗收[11].

10.Except payment of the deposit, being 4 months’ rent, management charge and Government rate in the sum of HK$4,360,392 (“the Deposit”), one month’s advance for rent, management charge and Government rate in the sum of HK$1,090,098 (“the Advance”) pursuant to the Lease, and a payment of HK$58,274 in November 2022, P has not paid any rent, management charge or Government rate to D.[12]

11.By letter of D’s solicitors dated 24 January 2024, D terminated the Lease, on the basis non-payment of rent etc, forfeited the Deposit and demanded P to quit and deliver vacant possession of the Premises.[13]

12.P has not returned vacant possession of nor commenced any business at the Premises. D counterclaims for a declaration that the Lease commenced on 16 June 2022 and terminated on 24 January 2024, the outstanding rent and other charges under the Lease as well as rent, Government rates and management charge in respect of P’s trespassing, forfeiture of the Deposit and vacant possession of the Premises.

13.On the other hand, P’s case, in a nutshell, is that the earliest date when D could deliver vacant and exclusive possession of the Property to P was on 29 August 2023, which was after the original commencement date of the Lease of 16 June 2022. As the term of the Lease did not commence on 16 June 2022, under the Lease, D had to give 14 days’ written notice of its commencement, which it undisputedly had not. Had the term commenced, it would have begun with a 6 months’ rent-free period during which P could carry out the necessary fitting out works prior to commencement of the elderly home business. As the term of the Lease had not commenced, P was not required to pay the rent, management charge and Government rate as provided for under clauses 3 and 4 of the Lease, and thus the termination of the Lease by D was wrongful.

14.More specifically, P raised the following in defence to the Counterclaim and in opposition to the Summons:

(1) The term of the Lease did not commence on 16 June 2022 because: (a) D had not installed the Windows at that time even though this was a condition precedent for the commencement of the Lease pursuant to clause 16 of Schedule 2 to the Lease (“Clause 16”) (“No Windows Defence”); (b) D had not delivered exclusive and vacant possession of the Premises under clause 12 of the Schedule 2 to the Lease (“Clause 12”) when: (i) there were still ongoing works in relation to the Windows which impeded P’s renovation and enjoyment of the Premises; and (ii) the sky window on 6/F was an unauthorized building work (“UBW”) (“No Vacant Possession Defence”)[14];

(2) As the term of the Lease did not commence on 16 June 2022, it was incumbent on D to provide 14 days’ written notice before the term of the Lease could commence, which is not disputed that D never did (“No Notice Defence”)[15];

(3) D’s claim on trespass is not sustainable on the facts, when the evidence suggests that P or its contractors were allowed on the Premises and was regarded as the lessee, and in any event, not sustainable in law, when no claim for mesne profits has been claimed. In any event, it would be abuse of process to allow a plea of trespass which is inconsistent with D’s primary case that P was the lessee (“No Trespass Defence”)[16]; and

(4) P has a viable set-off which extinguishes D’s counterclaim. P has claimed for the return of the Deposit, the Advance and damages for wrongful termination of the Lease (“Set-off Defence”)[17].

Applicable Principles

15.The applicable principles in respect of summary judgment are trite and undisputed. It is for the defendant to show that there is an arguable defence or triable issue. The defendant must satisfy the court that his evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence. The underlying policy of the summary judgment procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in a case in which the defendant clearly has no defence to the plaintiff’s claim. It is entirely inappropriate where the plaintiff’s entitlement to recover any sum is subject to serious dispute, whether of law or fact. See e.g. Hong Kong Civil Procedure 2025, Vol.1, §§14/4/1 and 14/4/9 and Polykote Coatings Manufacturing Co Ltd v Grace Rehabilitation Centre Ltd [2016] 2 HKC 29 per To J at §§12-19.

16.As for an order for interim payment, O. 29, r.12(c) of Rules of the High Court, Cap. 4A provides:

“…that, if the action proceeded to trial, the plaintiff would obtain judgment against the defendant for a substantial sum of money apart from any damage or costs,

the Court may, if it thinks fit, and without prejudice to any contentions of the parties as to the nature or character of the sum to be paid by the defendant, order the defendant to make interim payment of such amount as it thinks fit, after taking into account any set-off, cross-claim or counterclaim on which the defendant may be entitled to rely.”

17.It has been held that the onus on the applicant for an order for interim payment is a high one. This is because the court must be satisfied that the plaintiff “would” obtain judgment for substantial damages and not “would likely to”: see Hollywood Palace Co Ltd v Trans-Global Hong Kong Investment Ltd & Anor [2011] 1 HKLRD 833 per Recorder Anderson Chow SC (as he then was) at §17 and Guo Jing Jing v Art Master Investment Ltd (unrep) HCA 1008/2009, 11 December 2009 per Au J (as he then was) at §88. Both cases referred to and applied the decision of DHCJ Saunders (as he then was) in Shenzhen Envirotec Electronics Co Ltd & Others v Cellplus (HK) Ltd & Others [2005] 4 HKLRD 217 at §19 .

18.Whilst Mr Ross M. Y. Yuen (leading Mr Bennett Au-Yeung) counsel for D, argued that the high standard or onus has no application to an application for interim payment under O.29, r.12(b), I respectfully disagree:

(1) The court has to be satisfied that the defendant “would” be held liable to pay to the plaintiff a sum of money in respect of the defendant’s use and occupation of the land. There is no reason as a matter of principle why what has been said of the requirement under r.11(c) (that the court is satisfied the plaintiff “would” obtain judgment for substantial damages) should not also apply to r.12(b) when the same word “would” was used;

(2) Although the powers contained in rr. 11 and 12 are separate, the underlying purpose of each rule, i.e. mitigation of the hardship and prejudice to a plaintiff which may exist during the period from commencement of the action until trial, is the same: see Hong Kong Civil Procedure 2025, Vol.1, §29/12/5. Hence in the commentary to r.12 for grounds for contesting interim payment, cross-reference is made to the commentary under r.11: see ibid, §29/12/6; and

(3) See Shenzhen Envirotec Electronics Co Ltd at §19, a case concerning application for interim payment under O.29, r.12(c), where it was held that the standard of proof the court must apply is a high one.

19.Moreover, in Shenzhen Envirotec Electronics Co Ltd, it was held that where summary judgment application had been dismissed and the defendant given unconditional leave to defence based on a counterclaim that had been pleaded (in a second action), the criteria under O.29, r.12: (1) that the court must be satisfied that the plaintiff will (not will be likely to) obtain judgment in a substantial amount; and (2) the court must take into account any set-off, cross-claim or counter-claim by the defendant, cannot be met.

20.Similar to the observation of Lord Brown-Wilkinson V-C in British & Commonwealth Holdings Plc v Quadrex Holdings Inc [1989] 3 All ER 492 CA at 519B (quoted in Shenzhen Envirotec Electronics Co Ltd at §12), I find it an impossible concept for this court to be satisfied that P had an arguable defence which warrants unconditional leave to defend but at the same time be satisfied that D would succeed at trial. I take the view therefore it must be the case that D’s application for interim payment stands and falls with its application for summary judgment. If I grant unconditional leave to defend to P, the application for interim payment must be dismissed.

Discussion

Preliminary Observations

21.The factual matters put forward by P in defence to D’s counterclaim are wholly consistent with and is essentially P’s claim against D in this action. P has claimed against D: (1) a declaration that the term of the Lease has not commenced; and (2) damages in respect of loss of profits and wasted expenses on the grounds that D was in breach of the Lease for inter alia failing to install the Windows and failing to deliver vacant possession of the Premises with no UBW. [18] The fact that no application was ever made to strike out P’s claim but a Defence and Counterclaim was filed, amended and re-amended by D, must be an indication that even D accepts P’s case is bona fide and arguable.

22.Furthermore, the crux of D’s counterclaim (that possession of the Premises has been given to P and the Lease commenced on 16 June 2022) and P’s claim (vacant possession was not given on 16 June 2022 and the Lease has not yet commenced) are more or less opposite sides of the same coin. Therefore, it is clear that there are serious issues of dispute between the parties as to whether or not vacant possession has been given to P, whether the term of the Lease has commenced and if so, when. Particularly, given D pleaded an alternative case that the Lease had not commenced on 16 June 2022, and even on that alternative case, further alternatives as to when the Lease had commenced[19], it is clear that: (1) D must accept P’s case that the term of the Lease had not commenced is at least a credible and arguable one; and (2) there is a triable issue as to whether the term of Lease had commenced and if so, when.

23.Moreover, the hearing of the Summons was fixed for 3 hours. Despite the filing of detailed written submissions from counsel (the skeleton submissions of Mr Yuen was 30 pages with 4 annexes, the skeleton submissions of counsel for P, Mr Anthony Chan SC leading Ms Sheena Wong and Mr Alvin Cheung, was 35 pages and a 13-page reply note was filed by Mr Yuen), the hearing took the entire day. Each side filed two box files of authorities and there were 6 hearing bundles in total. The length of time taken for oral submissions, volume of documents filed, together with my observations above, demonstrate that it was not a clear case that P has no defence.

24.On a very high level of generality, it is clear to me that this was not an appropriate case for summary judgment as there are clearly triable issues and serious disputes of law and facts between the parties.

25.As in my view this action would have to proceed to trial, I shall only outline the main arguments made to me and my brief explanation was to why P has raised a credible and triable defence to D’s counterclaim. For the avoidance of doubt, all the numerous strands of arguments by counsel have been considered by me even though not each and every one is set out herein.

No Windows Defence and No Vacant Possession Defence

26.Mr Yuen relied strongly on the fact that possession of the Premises was given to P by D on 1 June 2022 as evident from the Handover Form. In essence, he submitted that, come what may, the term of the lease commenced on 16 June 2022 unless D gave notice for some other commencement date, which it never did.

27.Mr Yuen appeared to accept that the installation of the Windows had not been completed by 16 June 2022, yet he submitted there was no requirement to complete the works before giving vacant possession of the Premises. It was not expressly stated in Clause 16 that D had to provide and complete the installation of the Windows on or before the commencement date of the Lease. He submitted that there was a two-step process: firstly, to give possession of the Premises to P and secondly, for D to complete the rectification works after possession had been given to P. However, he admitted that this two-step process was not expressly provided for in the Lease.

28.On the other hand, there were the following express provisions of the Lease:

(1) The Handover Condition which states that “bare shell state and condition at the date when vacant possession is delivered by the Lessor to the Lessee”[20];

(2) Clause 12 which states:

“延遲起租日期

若業主(i.e. the Lessor)於起租日期時未能將該物業(i.e. the Premises)交吉予租方(i.e. the Lessee)，雙方同意順延起租日期至該物業成功交吉予租方。”[21]

(3) Clause 16 which states:

“加設窗戶

加設窗戶由業主提供。於起租日期時或之前，業主需負責協助租方於該物業外牆位置加設可開關窗戶(OPENABLE WINDOW)，相關加設窗戶細節由業主及租方協商議訂。”[22]

29.Reading the above provisions together, and against the undisputed background that D’s contractors were doing the installation work for the Windows at the time of the handover on 1 June 2022 and beyond 16 June 2022, it is arguable that D had not delivered vacant possession by 16 June 2022:

(1) It is clearly arguable that reading the entire Clause 16, it provides that加設窗戶 was to be done by D (and that is consistent with the undisputed background it was being done by D at the time when the Lease was executed);

(2) It would not make commercial sense if 加設窗戶 by D was not completed by the time of handing over vacant possession as: (a) this would necessarily mean that workers and equipment of D’s contractors would remain on the Premises which might mean there was no giving of vacant possession; and (b) against the background that the Premises could only be used as a residential care home for the elderly[23] and it was known to the parties that the Windows had to be installed in order to make the necessary application to apply for a licence to use the Premises as an elderly home, again there might not be vacant possession given;

(3) As to the extent of the works and presence of D’s contractors and whether that impeded on the use and enjoyment of the Premises (which is P’s case)[24], this is clearly disputed, is fact-sensitive and has to be tried;

(4) Under the Lease, the Premises was defined to include “all doors and windows and their frames, glass and fitments”[25]. This is consistent with the fact that the works in relation to the Windows was noted in the Check List of Standard Fittings and Fixtures. There arguably could be no handover of the Premises without the Windows; and

(5) It accords with commercial sense and the undisputed background to construe Clause 12 as catering for the eventuality that the installation of the Windows by D’s contractors cannot be completed by the date when vacant possession is given. Mr Yuen’s submission that it was to cater for the previous tenant not vacating the Premises is contrary to undisputed background that the previous tenant had vacated the Premises on 31 January 2022 well before the Lease was executed[26].

The No Notice Defence

30.Mr Yuen submitted that Clause 12 did not require any written notice of the commencement date. If there was agreement to postpone the commencement date under Clause 12, he submitted there was no need for D to give written notice the commencement date.

31.However, if one were to read the Lease as a whole, and giving effect to all the clauses, I am of the view P’s defence that no notice was given of the commencement date is plainly arguable. As contended by Mr Chan, in the Tenancy Particulars, the commencement of the term is expressly provided to be 16 June 2022 “or such other day as may be notified by the Lessor upon giving fourteen (14) days’ prior written notice to the Lessee.”[27] I take the view that if P is correct that there was no vacant possession delivered on 16 June 2022 then under this provision, the 14 days’ written notice had to be given by D to P. Given the importance for parties to know clearly when the term of the Lease commenced, as some rights and obligations of the parties under the Lease are by reference to the commencement of the term[28], and the express stipulation of giving written notice, I cannot accept Mr Yuen’s submissions that there was no need for written notice.

No Trespass Defence

32.I am of the view that this defence is also clearly arguable. On D’s primary case, P was the lessee and D was claiming for the rent, management charge and Government rate pursuant to the Lease. As such, there can be no serious contention that D’s case that it was not a trespasser was not bona fide and arguable.

33.Furthermore, given the dispute on whether the term of the Lease had commenced and whether the termination of the Lease was in accordance with the Lease, whether P remains on the Premises as a trespasser is clearly disputed. There is also factually a dispute whether P or its contractors were allowed on the Premises and therefore had an implied licence to be on the Premises and if so, for which period. These fact-sensitive matters should be tried and it is not appropriate for these issues to be resolved in an application for summary judgment.

Set-off Defence

34.Mr Yuen had argued that this defence is not available to P because of clause 6.5.4 of the Lease which provides:

“Causes other than Lessor’s wilful default

In respect of any loss of profit or of business or loss of life or loss or damage or injury to person or property sustained by the Lessee or any other person or any disruption or inconvenience suffered by the Lessee or any other person unless the same is caused by the wilful default of the Lessor and the Lessor is otherwise liable for the same”.[29]

35.Mr Yuen argued that on the facts when D was legally advised that the non-payment of the rent, management charge and Government rate was in breach of the Lease and entitled D to terminate the Lease, this could not amount to “wilful default”. However, the authorities show that “wilful” does not imply blameworthiness but means simply the person who is in default knows what he is doing, and intends to do what he is doing, and is a free agent: see Lee Ming Yueh v Broadway-Nassau Investments Ltd [2012] 5 HKLRD 208, §27 per Cheung JA. It is arguable that P’s claim for loss of business and damage is not prevented by clause 6.5.4. as wrongful termination of the Lease could be wilful default by D.

36.Furthermore, whilst Mr Yuen was very critical of the claim for loss of profits based on D’s business plans and projections and the lack of mitigation of loss by not having commenced any business, it seems to me plainly these are all matters which are facts sensitive and must be tried.

Disposition

37.For all the above reasons, I am of the view that P should be given unconditional leave to defend D’s counterclaim and no order for interim payment made.

38.I therefore will dismiss the Summons.

39.I make a costs order nisi that the costs of the Summons be in the cause. In the absence of any application to vary within 14 days of the handing down of this Decision, the costs order nisi shall become absolute.

40.Lastly, I thank counsel for their helpful assistance in this matter.

Mr Anthony Chan SC leading Ms Sheena Wong and Mr Alvin Cheung, instructed by O Tse & Co., for the Plaintiff

Mr Ross M.Y. Yuen and Mr Bennett Au-Yeung, instructed by Gallant, for the Defendant