Case Document

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LDPE 699/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 699 OF 2013

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BETWEEN
	伯良香港貿易有限公司	Applicant
	and
	黃錦科	Respondent

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Before : Deputy Judge KOT, Presiding Officer, Lands Tribunal

Date of Hearing : 13 June 2014

Date of Decision : 19 June 2014

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D E C I S I O N

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Undisputed or Indisputable Background

1.The applicant is the registered owner of a 3-storey property known as No. 41, West Lane, Tai Wai Village, Shatin, New Territories erected on the Remaining Portion of Lot No. 920 in Demarcation District No. 180 (“the Property”). By a tenancy agreement dated 18December 2012 signed between the applicant and the respondent (“T/A”), the Ground Floor of the Property (“the Suit Premises”) was leased to the respondent for a period of 3 years commencing on 3 January 2013 at the monthly rent of $38,000 (page 57-60 of Bundle).

2.Ever since the taking up of the tenancy, the Suit Premises was being used for the operation of a Thai restaurant. On 1 March 2013, the respondent received a letter from the Food and Environmental Hygiene Department (page 61-65 of Bundle) informing the respondent that the application for a provisional and full general restaurant license in respect of the Suit Premises would not be further processed on the basis that the Property could only be used for residential purposes according to the land grant.

3.The respondent failed to pay rent for the month of July 2013. On 15 July 2013, the applicant filed a Notice of Application (“Form 22”) at the Lands Tribunal against the respondent for a possession order on the ground of non-payment of rent (page 1 of Bundle).

4.On 17 July 2013, Madam Chan Pak Kam (“Madam Chan”), the director of the applicant, had filed an affirmation of service by way of a proforma (“Form 30”) (page 3 of Bundle) stating that the Form 22 had been sent on 15 July 2013 by ordinary post to the respondent addressed to the Suit Premises as well as by posting up a copy in a conspicuous place at the entrance of the Suit Premises on 3 consecutive days, namely on 15, 16 and 17 July 2013.

5.The respondent has failed to file any Notice of Opposition with the Tribunal within the time specified in law. Madam Chan, for and on behalf of the applicant, filed an application for judgment in default of opposition pursuant to Rule 15 of the Lands Tribunal Rules on 26 July 2013 (page 4 of Bundle).

6.On 29 July 2013, the respondent surrendered vacant possession to the applicant by delivering the keys of the Suit Premises to the applicant by way of a letter from his solicitor (“729 Letter”) (page 81-84 of Bundle). In the 729 Letter, the respondent alleged that the T/A was being rescinded by the applicant’s breach of contract and the respondent accepted the rescission. Upon delivery up of vacant possession, the respondent also asked for damages for the breach.

7.By a reply letter from its solicitor dated 6 August 2013 (“806 Letter”) (page 232-234 of Bundle), the applicant denied allegations raised by the respondent in the 729 Letter and alleged a wrongful repudiation of the T/A on the part of the respondent by failing to pay rent, such repudiation being accepted by the applicant. The applicant also asked for damages for the breach as well as the arrears of rent for the month of July and August 2013. Nothing mentioned about the application filed with the Lands Tribunal.

8.On 5 August 2013, this Tribunal made the following orders (“the Default Judgment”) (page 11 of Bundle):

(1) Subject to paragraph (4) below, the respondent do deliver vacant possession of the Suit Premises to the applicant;

(2) The respondent do pay the applicant arrears of rent/mesne profits at the rate of $38,000 per month from 3 July 2013 until delivery up of vacant possession;

(3) The respondent do pay the applicant the costs of this Application which is summarily assessed at $800; and

(4) If the respondent should on or before 19 August 2013 (“Relief Expiration Date”) pay into the Tribunal all the arrears of rent/mesne profits as stated in paragraph 2 above (including all arrears of rent/mesne profits due on or before the date of payment) together with the costs referred to in paragraph 3 above, the respondent be relieved from the forfeiture incurred herein, and the lease of the suit premises be reinstated.

9.The applicant received copy of the Default Judgment sent by the Lands Tribunal on or about 7 or 8 of August 2013.

10.On 15 October 2013, the respondent commenced the proceedings at the District Court (DCCJ 3998/2013 refers) against the applicant for breach of contract and misrepresentation (“DCCJ Action”) (page 86-106 of Bundle).

11.On 28 February 2014, the respondent filed an interlocutory application with the Lands Tribunal asking for :

(1) The Default Judgment be set aside;

(2) The proceedings be stayed pending the decision in the DCCJ Action; and

(3) Costs of and occasioned by this application be to the respondent.

12.This is the hearing of the application by the respondent for the setting aside of the Default Judgment and stay of proceedings.

The Law on Setting Aside a Default Judgment

13.There is no argument on the legal principles applicable to an application for setting aside a default judgment. In an application to set aside a default judgment, the test is whether the judgment was regular or irregular. If the judgment is irregular, the Hong Kong position is that such judgment is to be set aside as of right (Po Kwong Marble Factory Ltd v Wah Yee Decoration Co. Ltd. [1996] 4 HKC 157). If the judgment is regular, the merit of the defence needs to be examined and the defaulting party has to show that his case and the evidence adduced in support is potentially credible and carries some degree of conviction (Premier Fashion Wears Ltd v Lee Hing Chung [1994] 1 HKC 213, 219).

14.In Bank of China (Hong Kong) Limited v Cheung King Fung [2007] 1 HKLRD 462, the Court of Appeal found that in an application to set aside default judgment, the burden was on the defaulting party to prove that the judgment was irregular. Whether such a burden of proof is discharged is a matter of evidence.

15.Hong Kong Civil Procedure 2014 (at para.13/9/5 at p.228) states inter alia as follows :

“When a defendant deposes that he has not received the writ through the post, the court has little option but to believe this save when there is sufficient material to cast doubt upon the defendant’s credibility to enable the court to disbelieve him (which is a matter of evidence dependent on the circumstances of the case: see Wei Bingqing v. Xie Diangrong, unreported, HCA No. 2654 of 2003, [2006] H.K.E.C. 634).”

16.In Cheng Chi Lun v Ng Lai Ming Juliana HCA1611/2006, Mr Recorder Fok SC also said as follows :

“The Court of Appeal has, however, made clear that this does not mean that the court must accept a defendant’s assertion no matter how improbable: Bank of China (Hong Kong) Ltd v Cheung King Fung, Francis and Anor, unrep, CACV 66 of 2005, 5 July 2005 at § 33 per Tang JA. A defendant is required to provide convincing evidence; how much evidence is required must depend on the circumstances of the particular case” ibid. §34. The relevant question is whether there is sufficient evidence to cast doubt on the Defendant’s credibility such that the court should not accept the bare allegation that she has not received the writ.”

Regular Judgment?

17.It is the contention of the respondent that the Default Judgment is an irregular judgment in the sense that the respondent had neither received the Form 22 through postage nor seen any Form 22 posted up at the entrance of the Suit Premises. Enquiries made with the staff working at the Suit Premises between November 2013 and January 2014 also confirmed the same. The respondent also commented that Madam Chan’s evidence in the Form 30 is evasive. There is nothing in Madam Chan’s affirmation in opposition to this setting aside application as to the details of the postage of the Form 22 whilst details of the posting up of the Form 22 is forthcoming (§34 page 46 of Bundle). Madam Chan also said in her affirmation that “I have taken a video of the Notice of Application after it was posted up by me at the door of the Premises on 15, 16 and 17 July 2013” but the content of the video (page 236 of Bundle) only showed the Suit Premises on a date in August 2013. Furthermore, not a word about the application with the Lands Tribunal was mentioned in the 806 Letter. It is the submission of the respondent that there is doubt as to the veracity of the applicant’s alleged service efforts and its integrity in conducting the present proceedings.

18.The applicant’s reply to the attack raised by the respondent is that since the applicant had already filed the Form 30, nothing further on the postage of the Form 22 can be said in the affirmation of Madam Chan. The affirmation is made in reply to the respondent’s affirmation which laid emphasis on the posting up of the Form 22 at the Suit Premises. As for the video taken by the applicant, the wordings of the affirmation cannot be taken to mean that video was being taken on every day after the posting up of the Form 22. But the video did show that the Form 22 was still there at the entrance of the Suit Premises in August 2013.

19.Upon careful consideration of the affidavit evidence as well as submissions, I am satisfied that the respondent has failed to discharge his burden of proof that he did not have notice of the Form 22.

20.There is no dispute that this issue turns on the credibility of the witnesses. What the respondent had said are bare assertions whilst the applicant’s case is supported by the video produced by the applicant. Having viewed the video, one will have no difficulty to find that the video was one taken at the time when the applicant re-entered the Suit Premises which was in August 2013. It was never one taken at the time the Form 22 was being posted up. I accept the applicant’s explanation that the affirmation of Madam Chan had been badly drafted but cannot be taken to mean that video was being taken on each and every day after the Form 22 was being posted up on 15, 16 and 17 of July 2013.

21.The video was not intended to be taken to show the posting up of the Form 22 since it was not yet known to be an issue between the parties at the time the video was taken. But it is clear from the video that 4 pages of document were being posted up at the entrance of the Suit Premises. Even though the video didn’t clearly depict the content of the document posted up, the evidence of Madam Chan did confirm these are the Form 22 she posted up at the Suit Premises. The respondent had advanced no reasonable explanation as to what are the documents shown in the video likely to be. I accept the evidence of Madam Chan in this regard.

22.I have no doubt that the Form 22 have been posted up at the entrance of the Suit Premises by Madam Chan. Since it is the evidence of the respondent that he did attend the Suit Premises every day, the Form 22 posted up must have been noticed by him.

23.And since Madam Chan had made the effort to put up the Form 22 at the Suit Premises on 3 consecutive days, it would be absurd if she didn’t send the same by postage as well. I accept the evidence of Madam Chan that she did send the Form 22 by postage.

24.Furthermore, the respondent must have acquired knowledge of the Default Judgment in order to instruct his solicitors to act on his behalf in these proceedings and to apply to set aside the Default Judgment. It is significant that the respondent failed to give any explanation as to how he acquired such knowledge. His allegation of non-receipt of the Form 22 despite its apparent delivery to the Suit Premises does not sit well with his apparent knowledge of the Default Judgment. I find the respondent’s assertion not credible or convincing.

25.I find the Form 22 was properly served on the respondent and the Default Judgment was a regular judgment.

Meritorious Defence

26.There is no dispute that vacant possession had been surrendered to the applicant on 29 July 2013. The only issue remained in dispute in this case is on the liability to pay the mesne profits.

27.Mr. Wong for the respondent acknowledged that since the respondent had been in occupation of the Suit Premises between 3 July 2013 and 29 July 2013, the respondent was liable to pay the mesne profits for this period. The only defence raised by the respondent is one of set off in view of the DCCJ Action being lodged against the applicant.

28.The applicant contended that the defence of set off should not be raised here but should be dealt with in the DCCJ Action.

29.Madam Justice Chu (as she then was) had dealt with the doctrine of setting off of rent against damages claimed by a tenant in the case of Charmway Development Limited v Long China Engineering Limited HCA 54/2001 16 July 2001. The plaintiff, being the tenant, is suing against the defendant landlord for damages for breach of tenancy agreement. The defendant counter-claimed for arrears of rent. It is the findings of Justice Chu that :

“22. As previously observed, the covenant to pay rent is independent of the other covenants and obligations under the Tenancy Agreement. The Tenancy Agreement also does not permit any set-off on the rent. Secondly, the present claim of the plaintiff is for unliquidated damages. There is therefore no right to a legal set-off.

23. As to equitable set-off, the relevant principles are set out in para. 14/4/14 of Hong Kong Civil Procedure 2001. Generally speaking, where the claim and counterclaim are sufficiently closely connected so that it would be manifestly unjust to enforce one without regard to the other, a right to an equitable set-off may arise.

24. In the present case, although the claim and counterclaim both arise out of the Tenancy Agreement, there is insufficient connection between the claim for damages for breach of clause 10(ii) of the Special Conditions and of the covenant for quiet enjoyment and the counterclaim for rent. The alleged breaches have no bearing on the state and condition of the Premises. The alleged breaches also in no way compromise or deny the plaintiff’s right to the use and occupation of the Premises, for which the rent is paid.”

30.The findings in Charmway is applicable to the present case. The respondent is not entitled to a legal set-off since the covenant to pay rent is independent of the other covenants and obligations under the T/A and there is nothing in the T/A which permits any setting-off on the rent. It is also well settled that a legal set‑off requires both the claim and counterclaim be for liquidated sums which can be ascertained as at the date of the pleading: Axel Johnson Petroleum AB v MG Mineral Group AG [1992] 1 WLR 270 at 272F‑274C, per Leggatt LJ. As the respondent’s claim in the DCCJ Action is for unliquidated damages in the sense that the amount is not prescribed by the T/A itself and is not capable of being computed without investigation, there is no right of a legal set off and the respondent must be relying on equitable set off.

31.And the alleged breach of the respondent in the DCCJ Action has no sufficient connection with the claim for arrears of rent in this case. The alleged breach have nothing to do with the state and condition of the Suit Premises and the alleged breach in no way compromised or denied the respondent’s right to the use and occupation of the Suit Premises during the period the arrears of rent relates. There is insufficient connection between the claim for damages for breach of contract or misrepresentation as pleaded in the DCCJ Action and the claim for arrears of rent in this case. Without such connection, the respondent had also failed to raise an equitable set-off.

32.Having considered all the evidence and circumstances of the case, although the alleged claim in the DCCJ Action relates to the Tenancy Agreement upon which the Plaintiff based its claim, I am not satisfied that equity has impeached the title to the Plaintiff’s demand for rent and that there is a close connection between this claim and the DCCJ Action that would make it manifestly unjust to allow the covenant for rent to be enforced without taking into account the claim of the respondent in the DCCJ Action.

33.I found the respondent had failed to raise a meritorious defence of setting off.

Stay of Proceedings

34.The respondent asked for a stay of this proceedings should the Court found that the Default Judgment should be set aside. A stay is to enable the claim for mesne profits in this case to be dealt with in the DCCJ Action as well which is the most cost-effective way of disposing of the disputes between the parties.

35.The applicant objects to this on the ground that this Tribunal had already seized of the matter and there is no reason to justify a stay.

36.With the application for setting aside the Default Judgment being dismissed, there is no justification for a stay of this proceedings.

Conclusion

37.Having considered all the arguments raised by the respondent, I found the Default Judgment is a regular judgment and the respondent has also failed to discharge the burden of showing a meritorious defence which had a real prospect of success. The Default Judgment should not be set aside and the application by the respondent must be dismissed.

Costs

38.Costs of this setting aside application be to the applicant, to be taxed at District Court scale if not agreed, with certificate for counsel. This is a costs order nisi. Unless any of the parties apply by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.