Yesland Ltd and Others v. China Furniture City Ltd

HCA 2091/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2091 OF 2004

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BETWEEN

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Before: Mr Recorder B Yu, SC in Chambers (open to the public)

Dates of Hearing:  24 & 30 November 2005

Date of Judgment:  16 December 2005

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J U D G M E N T

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1.The plaintiffs are companies within the Sino Group of companies and sue as the landlords of certain premises in Kwun Tong Harbour Plaza at no. 182 Wai Yip Street, Kwun Tong, Kowloon against the defendant as tenant.

2.The action is for possession and mesne profits.  The Master granted summary judgment in favour of the plaintiffs.  The defendant appeals from that judgment.

3.The contractual framework between the plaintiffs and the defendant is in the form of 2 written tenancy agreements and two licence agreements.  All are dated 23 September 2003.  One tenancy agreement, which I shall refer to as “TA1”, is in respect of certain ground floor shops, the whole of the mezzanine floor, as well as the 1st and 2nd floors of the Kwun Tong Harbour Plaza.  TA1 was made between all the plaintiffs as landlord and the defendant as tenant.  The other tenancy agreement, which I shall call “TA2”, relates to some other shops on the ground floor in the same building.  It was made between the 3rd plaintiff as landlord and the defendant as tenant.  The licence agreements relate to the use of some car parking spaces and the external wall for advertising purposes.

4.The plaintiffs’ action is founded simply on the non-payment of rent and charges under the various agreements.  The plaintiffs’ case is that by August 2004, a sum of HK$2,411,336.09 was due and outstanding under the various agreements and the plaintiffs through their solicitors served a notice of re-entry on the defendant.  The plaintiffs also aver that the defendant has, over a period of time, drew or caused to be drawn a number of cheques in favour of the 3rd plaintiff in purported payment of the rent and charges, and that these cheques were dishonoured.

5.The defendant seeks to raise a number of defences before the Master.  The Master held that none of them constituted triable issues, considering them to be bare assertions which are unbelievable.

6.Before turning to the arguments raised before me, I should mention that after the entry of judgment against the defendant, the defendant obtained an interim stay of execution in respect of the ground floor and mezannine floor of the premises pending this appeal or further order, on the basis that the defendant would deliver up vacant possession of the whole of the 1st and 2nd floors of the premises on a voluntary basis on or before 21 May 2005, and on condition that the defendant shall pay into Court a sum of HK$150,000 on account of the use and occupation of the premises on or before 25 May 2005.  I understand that these conditions were satisfied.  Thus, when the parties came before me, the position on the ground was that the defendant only occupied the ground and mezzanine floors.

Defendant's arguments

7.In opening this appeal, Mr Swaine on behalf of the defendant mainly relied on the provisions of clause 13 of TA1 which provides:

“(a)	Prior to hand-over of vacant possession of the said premises to the Tenant, the Landlord undertakees to:
	(i)	check clean repair (if necessary) all the fan coil units within the said premises
	(ii)	rectify any structural defect detected within the said premises upon the inspection by the Tenant on 18th February 2003, details of which are listed in the list annexed hereto.
(b)	If rectification work to the said premises as mentioned in the above sub-clause (a)(ii) cannot be finished and completed upon the date of hand-over of vacant possession of the said premises i.e. the 23rd day of June 2003, the Landlord and the Tenant agree to postpone the commencement date to a date on or before 30th June 2003 and all the Rent Free Period and the Expiry Date shall be postponed simultaneously.
(c)	In the event that the aforesaid rectification work cannot be completed on or before 30th June 2003, the Landlord agrees and undertakes to grant further and special Rent Free Period to the Tenant equivalent to the exact number of days of such delay.  The said further and special Rent Free Period shall be effected after the expiry of the first 4 months Rent Free Period from the commencement of the term of this tenancy.”

8.It is not in dispute that contrary to what appears in clause 13(a)(ii), no list was annexed to TA1.  Nor is it in dispute that there is in existence a list setting out defects identified upon a joint inspection of the representatives of the plaintiff and of the defendant.  That was the list which was annexed as Schedule II to an Offer to Lease dated 10 March 2003 from the defendant to the plaintiff.

9.Mr Swaine’s main argument in this appeal is that many of the items of this list (which I shall refer to as the “February defect list”) have not been rectified even up to the date of the hearing of the appeal.  He relied on photographs taken on site in May 2005 to illustrate what the defendant contended to be the unremedied state.  The defendant’s contention is that since these defects have not been remedied, there should, under clause 13(c) be a special Rent Free Period equivalent to the exact number of days of such delay.

10.The defendant’s further contention is that in addition to the February defect list, there was in existence another list compiled and dated 15 April 2003 (“April defect list”) which contained further and other defects or work required to be done on the premises.  The defendant maintains that some of the works have not been carried out.  Mr Swaine accepted that this list was not referred to in clause 13 but sought to argue that there is a triable issue as to whether the defendant can claim rectification of TA1 for the list to be included.

11.In addition to relying on clause 13, the defendant has also raised a number of other matters. 

(1)     The defendant alleged that there was an agreement by the plaintiffs to construct a door and lobby between the car park and the 2nd floor of the premises.  This is said to be a condition precedent for delivery of vacant possession of the 2nd floor;

(2)     The defendant also alleged that the plaintiffs acted in breach of agreement by failing to provide electricity to the escalator to the 1st and 2nd floors; providing air-conditioning or lighting to various parts of the area.

12.Mr Swaine contended on behalf of the defendant that it was because of the plaintiffs’ various breaches which led to the defendant’s inability to sublet out the 1st and 2nd floor premises.  The defendant has not particularised what loss it alleges to have suffered from these alleged breaches.  Mr Swaine was able to point only to a general averment that the rent that the defendant might have been able to derive from successful subletting would be $4.50 per square foot (which he said would be inclusive of management fees and air-conditioning charges).  This is only marginally more than the contractual rate of $4.498 per square foot.  With the voluntary surrender of the 1st and 2nd floors, any loss to the defendant is not apparent and I would not be inclined to give leave to defend on the basis of these allegations.

13.I pause to observe that the defence as run before me is rather different from the defence as foreshadowed in a draft defence verified by Mr Wong Pak Sum who described himself as the President of the defendant or as run before the Master.  In particular, it was maintained both in the draft defence and before the Master that the plaintiffs have failed to deliver vacant possession of the 1st floor and 2nd floor to the defendant.  This assertion was found by the Master to be unbelievable in the light of contemporaneous documents.  Such  contention is no longer maintained by the defendant before me.

14.Another important shift in the defendant’s position is the emphasis it places on clause 13.  Paragraph 22 of the draft defence sought to plead the following by way of particulars of an allegation that the plaintiffs failed to comply with rectification work in clause 13(a)(i) and (ii) of TA1:

“Despite repeated requests by the Defendant, the Plaintiffs have failed and/or refused to check, clean and repair and fan coil unit on the 1/F.”

15.If these were the only alleged failure on the part of the plaintiffs, this would not have enabled the defendant to rely on clause 13(c), since the checking, cleaning and repairing of fan coil units was an obligation provided for in clause 13(a)(i), not (ii), and clause 13(b) and (c) will only be relevant if there has been a failure to finish or complete works under (ii).  What has just been described remained the position when the parties were before the Master.  Unsurprisingly, the Master was not prepared to grant leave to defend on the basis of that allegation.

16.At the hearing before me, the defendant produced photographs seeking to show that various items on the February and April defect lists have not been remedied by the time these photographs were taken (May 2005).  The plaintiff produced a surveyor’s report commenting on these items.  Mr Marshall for the plaintiffs took the Court through the items with the view to persuading this Court that the defendant’s contentions that the defects had not been remedied were unbelievable.  He submitted that at least some of the defendant’s photographs were taken in a deliberately misleading way and asked me to compare the photographs taken by the defendant with those which were taken at the time of the inspection for the purpose of identifying the defect.  Whilst I can understand why the plaintiffs yielded to the temptation of embarking upon this submission, I must reject it as being inappropriate for the summary process under our Order 14 procedure.  It would, in my judgment, be inappropriate and wrong to seek to resolve the factual issues of whether a defect has been remedied by the Court's own interpretation of the photographs.

17.Although the defendant may have raised a triable issue of whether the defects on the February and April lists have been rectified, this does not necessarily entitle the defendant to unconditional leave to defend.  There is powerful evidence that the defendant was, at the time, satisfied that the defects have been all been remedied and may well have been prepared to waive any minor problem that might have remained.  The defendant has commenced to pay rent which it would otherwise not be obliged to do had it not been satisfied with the rectification works.  No mention was made of these defects until the matter was raised in the 5th affirmation of Mr Wong filed in May 2005.  There is also the evidence of the Work Requisition Forms which contained the chop and signature of a staff of the defendant (Michelle Chan) certifying that the work has been satisfactorily completed.  I do not overlook the fact that the defendant has sought to disclaim the authority of Michelle Chan.  However, bearing in mind that this is an Order 14 appeal, it is neither necessary nor appropriate for me to go beyond saying that having regard to the mode of presenting its case, the defendant should be ordered to pay into Court a sum of money as condition for leave to defend.  I take into account the fact that the defendant has voluntarily giving up possession of the 1st and 2nd floor but that between now and the trial the defendant would have the benefit of the use and occupation of the ground and mezzanine floors.  Mr Marshall suggested that a figure of $200,000 per month would be fair for the use and occupation of the ground and mezzanine floor.  Mr Swaine did not demur.

18.The order of Master Ho dated 19 May 2005 imposed the condition for stay that the defendant should pay a sum of HK$150,000 on account of use and occupation of the premises up to 25 May 2005.

19.In the circumstances, I would allow this appeal and grant leave to the defendant to defend subject to the following conditions:

(1)     the defendant shall pay into Court the sum of $1,4000,000 within 14 days from the date of this Order;

(2)     thereafter, the defendant shall pay into Court the sum of $200,000 per month, the first of which shall be paid on or before 1st January 2006 until judgment or further order.

20.I make an order nisi that the costs of this appeal shall be in the cause.  Bearing in mind that the arguments before me were very different from those run before the Master, I do not propose to disturb the costs order made by the Master.  In this matter, the skeleton argument of the defendant was served late.  I have heard Mr Swaine as to the reasons for the latetness.  Although I am not wholly satisfied with the explanation, I would not in this instance make a different order for costs that would normally follow from the outcome, but the parties must bear in mind that the Court may well have to exercise its powers to deprive a party of its costs if it fails, in the absence of an adequate explanation, to follow the Practice Directions.

Mr William Marshall and Mr Thomas Kwan, instructed by Messrs F Zimmern & Co., for the 1^st to 3^rd Plaintiffs

Mr John JE Swaine, instructed by Messrs Rowland Chow, Chan & Co., for the Defendant