International Trademart Co Ltd v. Club Regency Ltd
Read the full judgment text of HCA 1243/2008 on BabelCite. This High Court CFI judgment was delivered on 25 July 2008.
1. Club Regency Ltd, (Club Regency), operates a high quality private members club comprising leisure and dining facilities in a building owned by International Trademart Co Ltd, (ITC), in Kowloon. The club, which comprises some 210,000 ft.² of floor space over several floors, has been in existence since about August 2003.
Cited by 3 cases · Cites 1 case
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HCA 1243/2008 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1243 OF 2008 ----------------------
---------------------- Before: Hon Saunders J in Chambers Date of Hearing: 21 July 2008 Date of Judgment: 25 July 2008 ---------------------- J U D G M E N T ---------------------- Background: 1.Club Regency Ltd, (Club Regency), operates a high quality private members club comprising leisure and dining facilities in a building owned by International Trademart Co Ltd, (ITC), in Kowloon. The club, which comprises some 210,000 ft.² of floor space over several floors, has been in existence since about August 2003. 2.In addition to making its facilities available to members, the restaurant and banqueting facilities are available for public hire, and the club has become popular as a location for wedding receptions, with reservations extending into the future for some time. 3.An issue has arisen as to whether or not Club Regency is entitled to renew its lease, which expired on 30 June 2008. 4.Mr Yu for ITC says that Club Regency has failed to comply strictly with the provisions of the lease, and that consequently Club Regency is not entitled to a renewal. Proceedings have been commenced by ITC seeking possession of the premises, and the usual ancillary orders. ITC now seeks an interlocutory injunction restraining Club Regency from remaining on or using the premises otherwise than for the purpose of vacating the premises or the orderly delivery up of vacant possession. The injunction seeks also that Club Regency be restrained from accepting future bookings or reservations from any person for the use of any of its facilities located in the premises. 5.Mr Clough for Club Regency says that, at the least, there is an arguable case that there has not been any relevant breach of the lease, and that accordingly the injunction ought not to be granted. The Lease: 6.The premises are located in a building known as the Hongkong International Trade & Exhibition Centre. By a lease dated 26 September 2003 ITC leased the premises to Club Regency for a term of five years commencing on 1 July 2003 and expiring on 30 June 2008 together with an option to renew for a further term of five years. 7.The rental payable is set out in the Second Schedule to the lease in the following terms:
8.The lease contains an option to renew, the relevant portion of which is in the following terms:
The Accepted Facts: 9.It is common ground between the parties that the notice required by Clause 20(a) of the lease was duly given. 10.On 6 June 2008, in response to the notice that had been given on 21 December 2007 by Club Regency exercising the right of renewal, a new lease was sent to them. The letter forwarding the new lease contained the following paragraphs:
Consequently, Club Regency was on clear notice that strict compliance with the renewal provision was required. 11.Mr Clough, correctly on the evidence, acknowledges that as at 30 June 2008 the rent due for May 2008, being both the Basic Rent of $500,000, and the Gross Turnover Rent ($253,210.93 being 17.5% of the Gross Turnover, i.e. $753,210.93, less the Basic Rent of $500,000) and the Basic Rent for June 2008, had not been paid. The total sum of $1,253,210.93 was paid on 7 July 2008. The law on the right to renew: 12.It is common ground between the parties that, as a matter of law, if a tenant wishes to exercise and take the benefit of an option to renew his lease he must comply strictly with any conditions precedent imposed by the option: see Finch v Underwood (1876) 2 Ch D 310; West Country Cleaners (Falmouth) Ltd v Saly [1966] 1 WLR 1485; Bairstow Eves (Securities) Ltd v Ripley (1992) 65 P & C R 220. 13.It is also common ground that, as a matter of law, on the true interpretation of the option to renew, past breaches of the lease by Club Regency which have been remedied will not prevent it from obtaining a renewal of the lease. 14.On the evidence ITC contend that there were other breaches of the lease, contending that certain other charges due prior to 30 June 2008 had not been paid. These contentions include assertions that since 1 April 2008 and continuing on 30 June 2008, contrary to requirements in the lease, a restaurant on the 13th floor of the premises had not been kept open for business; and that Club Regency had failed by 30 June 2008 to rectify a water leakage into the car park on Basement 1. 15.In the proceedings before me Mr Yu was content to rely solely upon the non-payment of rental due as the basis upon which he could argue that Club Regency was no longer entitled to a renewal of the lease. However he did not abandon the other breaches. Interpretation of the rental clause: 16.In the course of argument it became plain that the rental provision was capable of two different interpretations. That there are two interpretations arises from the presence of the expression “if payable” in clause 2(A) of the rental provision in the lease. 17.The first interpretation, that argued by Mr Yu, is that expression “if payable” simply refers to the distinction in the calculation methods of rent for the period between years 1-2, and years 3-5. In years 1-2 no Basic Rent is payable. But during the years 3-5, the monthly Basic Rent, by definition, must be paid in advance on the first day of each and every calendar month. The balance of the monthly rent, being the Gross Turnover rent less the Basic Rent already paid, must be paid by the last day of the month following the month upon which the Gross Turnover is calculated. 18.On this interpretation the rental arrears amount to $1,253,210.93. 19.The alternative interpretation, argued by Mr Clough, is that the expression “if payable” refers to the distinction between monthly Basic Rent and Gross Turnover rent. Basic Rent, says Mr Clough, is only payable in circumstances where the Basic Rent is less than the Gross Turnover rent. Thus, says Mr Clough, in the months when the Gross Turnover rent exceeds the Basic Rent, no payment is due on the first of the month, and the full sum of the Gross Turnover rent is due on the last day of the following month. 20.It is not necessary for me to resolve this difference in interpretation because in the course of argument Mr Clough was obliged to accept that even on his interpretation of the rental provision, the whole of the rent for May 2008 a sum of $753,210.93, would have been due on 30 June 2008. It is not in dispute that that sum had not be paid by that date. 21.On the face of it therefore, on 30 June 2008, there were arrears of rent and consequently Club Regency had forfeited its right to the renewal option. The argument for Club Regency: 22.It is therefore necessary for Club Regency to establish an arguable case that notwithstanding either interpretation of the rental provision there is a basis upon which it can be said that no rent was outstanding on 30 June 2008. 23.To achieve this position, the case for Club Regency is that there was either, (1) a consensual variation of the contractual arrangements so that any rent will only be payable once the Gross Turnover has been calculated and an invoice/payment advice has been supplied by ITC to Club Regency; or (2) if there was no binding contractual variation, there was an equitable forbearance arising from the conduct of ITC in relation to the delivery of invoice/payment advices; or (3) an estoppel by convention. If any one of these three scenarios is arguable, a case may be made by Club Regency that the rent was not in arrears. A variation of the lease: 24.Mr Clough took me carefully through the documentary evidence to argue that, throughout the whole of the period of the lease, Club Regency had made payment of the rental instalments only after having received either an invoice, or later a document described as a “payment advice”, from ITC. This he said established a practice which amounted to a consensual variation of the lease. On the basis of such a variation, Mr Clough said, the rental due on 30 June 2008 for the month May 2008, was properly paid on 7 July 2008. 25.Mr Clough acknowledged that such a variation must be supported by consideration and said that the consideration came from the fact that the system had been established by ITC, apparently for its practical benefit, and that practical benefit provided the consideration: see Williams v Roffey Bros & Nichols (Contractors) Ltd [1991] 1 QB 1. 26.Mr Clough argued that such a variation was consistent with two previous occasions on which the parties had varied the lease. The first, prior to the commencement of the term, was when Club Regency agreed to pay to ITC an initial cash float of $500,000 to be applied towards the monthly rental by deduction during the first period of the lease, (years 1-2). The second, during the second period of the lease, (years 3-5), was when, at the request of ITC, Club Regency relocated part of its premises in the building and were entitled to a sum of $3.5 million by way of compensation. The parties agreed that the sum would be held by ITC and an agreed schedule was established providing for deductions from that sum on a monthly basis towards the Basic Rent. 27.I am satisfied that the proposition that there had been a variation of the lease is simply not arguable. 28.First, the alleged variation apparently made as a result of a “practice” was not recorded in writing. Such an unrecorded variation is entirely inconsistent with the practice of the parties in respect of the two variations referred to by Mr Clough, both of which were reduced to writing and signed by the parties. Additionally, the alleged variation is entirely inconsistent with a specific provision of the lease, that is Clause 2(C) of the rental provision, which clearly places the obligation on Club Regency to supply to ITC a monthly account Gross Turnover not later than the last day of the month following the relevant month, together, (my emphasis), with the monthly rent payable. 29.Second, the alleged variation is entirely inconsistent with the actual practice of Club Regency. The evidence establishes that from August 2007, to February 2008, Club Regency tendered rental payments without having received any payment advice at all from ITC. It is right that those rental cheques were rejected by ITC, (see paragraphs 27(iii), (iv) & (v) below), but that is beside the point. What is relevant is that the rental payments were made in the complete absence of a payment advice. 30.Third, the alleged variation is entirely inconsistent with the course of correspondence between the parties. Through an exchange of seven letters, the details of which I now set out, no suggestion was made at all that there had been any variation of the lease in relation to the time or method of payment of rent. To the contrary it is plain from Club Regency’s solicitors correspondence that Club Regency considered itself obliged to pay the rent in terms of the lease.
31.There is nothing in the correspondence to indicate any assertion on the part of Club Regency that the payment provision in the lease had been varied. To the contrary the correspondence from Club Regency’s solicitors’ asserts recognition by Club Regency of the obligations under the lease. 32.Two aspects of this correspondence are particularly significant. First, the attachment to the letter from HITEC to Club Regency dated 20 March 2008, was a schedule setting out how the total sum due was calculated. It is not without significance that the monthly Basic Rent, and the extra Gross Turnover rent were separately calculated, with the Basic Rent being shown due on the first of the applicable month, in other words pursuant to Mr Yu’s interpretation of the rental provision. In particular, an entry was made indicating a payment already due on 1 March 2008 of monthly Basic Rent for the month of March 2008 in the sum of $500,000. 33.If, as is now contended by Club Regency, there had been a variation of the lease resulting in the Basic Rent not being due until a Payment Advice was delivered during the following month, then undoubtedly the schedule would have been returned appropriately amended. It was not returned and the sum calculated pursuant to the schedule was paid in full without challenge to the form of the schedule. 34.Second, in particular, no suggestion is made in the letter dated 21 April 2008 from Club Regency’s solicitors to ITC that, by way of practice, there had been a variation of the lease resulting in a changed arrangement for payment of rental. 35.Both of these circumstances are entirely inconsistent with there having been a variation of the lease pursuant to a practice. I am satisfied that there is simply no arguable basis upon which it can be contended that there has been a variation of the lease arising either by practice or by oral arrangement between the parties. An equitable forbearance: 36.Mr Clough next argued that if there was no binding contractual variation there had been an equitable forbearance on the part of ITC in relation to the late payment of rent. He relied upon the following passage from Chitty on Contracts, 29th Ed para 22-035:
37.While the proposition is a correct statement of the law, in this case it simply cannot stand on the facts. First, as is demonstrated by the correspondence above, ITC was scrupulous in ensuring that it recorded that the acceptance of any arguably late payments did not constitute a waiver or a condoning of the breach. 38.But in any event, the lease contained a stipulation to that effect. Section VIII (2) of the Lease provides:
39.Mr Clough contended that such a clause was unenforceable, relying on Woodfall’s Law of Landlord and Tenant, para 17.095, and Hill & Redman’s Law of Landlord and Tenant, para 8944. Mr Yu responded, contending that such a clause was unenforceable only in relation to a forfeiture. 40.Where a breach of a lease gives rise to a right of election by a landlord, i.e. to forfeit the lease or accept the rent and continue the lease, it is clear that the landlord may not “blow hot and cold”. He may not, for example, to accept the rent, but at the same time reserve his rights to forfeit the lease on the ground of late payment of rent: see Lord Atkinson in R v Paulson [1921] 1 AC 271 at 283. 41.The landlord must make an election in such a circumstance and he will be bound by that election. In each of the authorities cited by the textbooks in support of the proposition relied upon by Mr Clough, the issue was a question of an entitlement by the landlord to forfeit the lease upon a breach having occurred. In each case it was open to the landlord to elect to waive the breach, and to treat the lease is continuing. 42.In the present case no question of an election on the part of the landlord arises. The landlord does not rely upon non-payment of rent, (of which there may have been a previous forbearance in relation to late rent), to give him a right to terminate the lease. Here the landlord relies upon the fact of arrears of rent to disentitle the tenant to renewal of the lease in terms of the renewal clause. There is nothing in the authorities cited to indicate that the waiver clause would not be enforceable in those circumstances. 43.There is no arguable basis upon which it may be contended that there has been a relevant equitable forbearance on the part of ITC. I am satisfied that any waiver or forbearance that might have been given by ITC to Club Regency is, by reason of both the provisions of the lease, and ITC’s express terms of acceptance of rent, not such as to give rise to an equitable forbearance. An estoppel by convention: 44.Finally, Mr Clough contended that there had been an estoppel by convention. This doctrine has recently been considered and affirmed by the Court of Final Appeal in Unruh v Seeberger & Anor (2007) 10 HKCFAR 31, so I do not need here to restate the principles. 45.This factual basis for the argument was that the conduct of the parties in relation to the payment of rent over the second term of the lease, (years 3-5), had resulted in a common assumption being shared by the parties that any rent would only be payable once the Gross Turnover had been calculated and an invoice/payment advice had been supplied by ITC to Club Regency. 46.For the same reasons that no agreement had been reached in relation to a variation of the lease, I am satisfied that no such common assumption was shared by the parties. 47.In particular the complete absence of any suggestion in the correspondence between the parties set out above, that there was such a common assumption, is a strong argument that there was in fact no common assumption. In Unruh v Seeberger, the court found it “inexplicable” that if the common assumption did exist, as contended, the party to be charged with the common assumption, the public company of which Mr Seeberger was chairman of directors, was only added to the proceedings some 16 months after the proceedings were commenced. 48.It is equally inexplicable that, if the common assumption did exist, Club Regency apparently gave no instructions to that effect to its solicitors prior to 30 June 2008. It is equally inexplicable that the correspondence between the parties prior to that date, particularly correspondence from Club Regency’s solicitors, which directly addressed the issue of rental liability, made no reference whatsoever to the common assumption now asserted by Mr Clough. 49.I am satisfied that it is quite unarguable that an estoppel by convention has arisen. Conclusion as to renewal option: 50.I am satisfied that on 30 June 2008 Club Regency was in arrears of rent in at least the sum of $753,210.93. The law is clear. If the tenant is to take advantage of the renewal option he must comply strictly with the terms of the relevant provision. By being in arrears of rent on 30 June 2008, Club Regency is not entitled to a renewal of the lease. 51.Mr Wong, the managing director of Club Regency, has expressed the view that it would be unjust and against commercial morality, particularly in the light of the co-operation of Club Regency in ITC’s request for a pre-payment of rent, and the renovation ordeal, if the Club were not able to renew the lease. 52.Unfortunately it is absolutely plain that Club Regency were on notice from ITC that strict compliance with the lease terms, particularly the renewal provision, was required. Club Regency had the funds, and it was open to it to make payment of the outstanding rent on ITC’s interpretation of the rental clause on or before 30 June 2008. Instead Club Regency chose not to make payment on that date but to wait until 7 July 2008 to make payment. They must take the consequences of that decision. Should the interlocutory injunction sought be issued: 53.The issuance of an interlocutory injunction is a matter of discretion. Mr Clough contends that there is no genuine urgency to justify interlocutory steps. 54.The evidence establishes that despite the termination of lease, Club Regency is publicly asserting a continuing right to the premises, and soliciting and apparently accepting bookings from the public for the use of the facilities in the future. The effect of my decision is that Club Regency has become a trespasser as at 1 July 2008. It would be quite wrong in my view to defer any injunction when unsuspecting members of the public may make commitments to the premises which will not be able to be fulfilled. 55.The law is clear. A landowner whose title is not in issue is entitled to an injunction to restrain a trespasser on his land, whether or not the trespasser harms him: Patel v Smith [1987] 1 WLR 853 at 858F. It is no argument to say that no harm has been done to the landowner because trespass, being an invasion of a property right, itself constitutes the harm: Woolerton and Wilson Ltd v Richard Costain Ltd [1970] 1 WLR 41. 56.Once the plaintiff can show a violation of his legal rights he is entitled, prima facie, to an injunction: Jaggard v Sawyer [1995] 1 WLR 269, and the burden is on the tenant to establish a right to continue in possession: Portland Managements Ltd v Harte & Ors [1977] 1 QB 306. 57.Club Regency, has no arguable case to persist in occupation of the premises. The lease terminated on 30 June 2008, and Club Regency is now a trespasser and not lawfully entitled to a renewal of the lease. In those circumstances, there being no arguable case that the Club should remain in occupation, American Cyanamid questions of the balance of convenience, status quo and damages being an adequate remedy, simply do not arise: see Stephen Gee, Commercial Injunctions, para 2.1016(3) and Patel v Smith at 861C. That Club Regency might suffer irreparable damage as a consequence of the issue of an injunction is therefore irrelevant. 58.The injunction seeks to restrain Club Regency from occupying the premises otherwise than for the purpose of vacating them, and to restrain Club Regency from accepting further bookings or reservations in relation to the premises. I am satisfied that no arguable case has been made out that the injunction should not be granted in terms. Orders: 59.An injunction will accordingly issue forthwith in terms of paragraphs 1 & 2 of ITC’s summons dated 9 July 2008. There will be an order nisi that costs on the summons will be the Plaintiff’s costs in the cause.
Mr Benjamin Yu, SC leading Ms Yvonne Cheng, instructed by Messrs Woo, Kwan, Lee & Lo, for the Plaintiff Mr Neal Clough and Mr Kent Yee, instructed by Messrs King & Co, for the Defendants |
Cases cited in this judgment