MENGIWA PROPERTY INVESTMENT LTD v. LIFESTYLE RESTAURANT LTD

HCA 1864/2021

[2022] HKCFI 3640

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1864 OF 2021

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DECISION

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1.  This is a landlord and tenant dispute. The plaintiff (“P”)  is the landlord, and the defendant (“D”)  is the tenant. In these proceedings, P is seeking to recover the rent and other charges payable by D under the relevant tenancy agreement (“the TA”).

2.  On 7 June 2022, Master Benny Lo allowed P’s application for summary judgment.  The Master entered final judgment on liability for P and against D, with damages to be assessed. However, the Master dismissed P’s application for interim payment.

3.  The matter before me today is P’s appeal from that decision.[1] P contends that its application for interim payment ought to be allowed.

4.  In this appeal hearing, P is represented by Mr Alexander Tang (together with Mr Martin Lau), and D is represented by Mr Tasman Tam.

Background

5.  P is the owner of a building known as Stelux House (“the Building”).

6.  Since about 1 April 2016, D first became a tenant of a portion of the Building (“the Premises”)  and operated a restaurant therein.  On 27 December 2019, the parties renewed the tenancy and entered into the TA for 3 years commencing on 1 April 2019.  Apart from the rent stipulated in the TA, management charges, Government rent and rates, and some utilities charges are also payable by D under the TA.  August of each year is designated as a “rent free” period.

7.  In the TA, D has agreed to, inter alia, the following:

(1)  to keep the Premises open at all times of the year during normal business hours[2];

(2)  if D defaults in its rental obligations:

(a)  P is entitled to terminate water and electricity supplies to the Premises[3]; and

(b)  P is also entitled to cancel the “rent free” period, and to ask D to retrospectively pay for such rent[4].

8.  Since 1 May 2020, D ceased to pay rent and other charges in accordance with the TA.

9.  By December 2020, P took partial enforcement action:

(1)  On 7 December 2020, P instructed solicitors and issued a demand letter.

(2)  On 16 December 2020, P invoked the bank guarantee provided by D pursuant to the TA.  HSBC paid the guaranteed amount on 24 December 2020, and P applied the amount to satisfy D’s arrears.

10.  By April 2021, D had continuously failed in performing its obligations to make payments under the TA.  P took further actions:

(1)  On 7 April 2021, P asked D to surrender the TA early.

(2)  On 19 April 2021, P terminated the water supply to the Premises and foretold D that the electricity supply would be cut by 21 April 2021.

(3)  On 21 April 2021, D, without giving notice to P, moved out of the Premises, removing all food and refrigerating equipment therein.

(4)  On 23 April 2021, the management company of the Building (“the Management Company)  locked the entrance to the Premises. According to P, the Management Company became worried about the security of the Premises after D’s departure, and hence locked the entrance to the Premises as a security measure.

11.  On 28 April 2021, P served a statutory demand (“the SD”)  on D for the sums in arrears calculating up to 27 April 2021, the total of which being HK$3,945,923.40.

12.  On 18 June 2021, P presented a winding-up petition (“the WU Petition”)  against D in HCCW 224/2021 (“the WU Proceedings”), on the basis that D is insolvent and unable to pay the debt as stated in the SD, together with any sums in arrears accruing from 28 April 2021, until D delivers vacant possession of the Premises to P.

13.  D opposes the WU Petition on the ground that there is a bona fide dispute as to the underlying debt.  By an Order dated 2 September 2021 made in the WU Proceedings, the hearing of the WU Petition has been adjourned to a date to be fixed before the Companies Judge with 3 hours reserved.  The date for the substantive hearing of the WU Petition has not yet been fixed.

14.  On 10 December 2021, P commenced these proceedings against D.  On 6 January 2022, D filed a notice of intention to defend.  On 31 January 2022, P took out a summons for summary judgment and interim payment.  On 7 June 2022, the Master made the decision as set out in [2] above.

THE PARTIES’ RESPECTIVE CASES CONCERNING INTERIM PAYMENT

15.  In the hearing before the Master, D has put forward the following in opposition to P’s applications:

(1)  Abatement Defence - D claims that under Clause 7 of the TA, there should be abatement of rent if a “closure order” is made.  D contends that as a result of COVID-19 and the Government’s restrictions on consumption of food on the Premises between 15 July 2020 and 12 May 2021, a “fair proportion” of rent and charges should be abated.

(2)  Counterclaim Defence - D alleges that P has breached the TA by locking up the doors of the Premises on 23 April 2021, and as a result of which D suffered loss of revenue of about HK$3 million as it had to inter alia turn away 20 wedding banquet customers.

16.  The Master refused to accept the Abatement Defence as an arguable defence.  As to the Counterclaim Defence, the Master found that there are triable issues in relation to this defence, but D’s case on quantum of loss is not particularized.

17.  In this appeal hearing, Mr Tam for D has made it clear that:

(1)  There is no appeal or cross-appeal from D concerning the summary judgment granted by the Master.

(2)  D does not rely upon its proposed counterclaim for the purpose of resisting P’s application for interim payment.

18.  Accordingly, in this appeal, the Abatement Defence and the Counterclaim Defence put forward by D in the hearing below are no longer relevant. 

19.  Rules of the High Court, Order 29 rule 11(1)  provides:

“If, on the hearing of an application… the Court is satisfied: -

(a)  that the defendant against whom the order is sought has admitted liability for the plaintiff’s damages; or

(b)  that the plaintiff has obtained judgment against the defendant for damages to be assessed; or

(c)  that, if the action proceeded to trial, the plaintiff would obtain judgment for substantial damages against the defendant,

the Court may, if it thinks fit…order the respondent to make an interim payment of such amount as it thinks just, not exceeding a reasonable proportion of the damages which in the opinion of the Court are likely to be recovered by the plaintiff after taking into account…any set-off, cross-claim or counterclaim…” (Emphasis added)

20.  There is no dispute that the condition in Order 29 rule 11(1)(b)  has been satisfied.  The question is whether the court’s discretion should be exercised in P’s favour to make an interim payment order.

21.  Mr Tang for P submits that having taken the points in opposition put forward by D in the assessment of damages into account, even assuming all these points in D’s favour, the amount payable by D to P should be HK$3,622,764.93 (“the Sum”).  Accordingly, Mr Tang submits that there should be an order requiring D to pay the Sum to P as interim payment.

22.  Mr Tam does not dispute the calculation put forward by Mr Tang.  However, Mr Tam submits that P’s application for interim payment should be refused for the following reasons:

(1)  The assessment of damages would be conducted in the near future, and there would not be a long delay before the conclusion of the assessment exercise.

(2)  There is no evidence suggesting that any delay in P’s obtaining a quantified money judgment would cause any hardship or prejudice to P.

(3)  It is P’s evidence that D is impecunious.[5] At the very least, by the WU Proceedings, P attempts (and is still insisting)  to put D into insolvent liquidation.  The hardship that will be caused to D (and to D’s other creditors)  from having to make an immediate interim payment of any amount, weigh against the granting of interim payment to P’s favour.

(4)  Since the WU Proceedings are on foot, under s.182 of Companies (Winding Up and Miscellaneous Provision)  Ordinance (“CWUMPO”), any disposition of the property of D shall be void unless the court otherwise orders. Thus, to require D to make interim payment to P, is no different than making a validation order in favour of P.  The court should not validate any transaction or series of transactions which might result in one or more pre-liquidation creditors being paid in full at the expense of other creditors in the absence of special circumstances making such a course desirable in the interest of the creditors generally.

(5)  In the WU Proceedings, if a winding-up order is made against D at the end, any interim payment paid by D to P will have to be clawed back by the liquidator(s)  to the general pool of funds of D for distribution in the liquidation process.  There is no practical purpose at all to require D to transfer a sum of money as interim payment to P now, just so that P will later transfer the same back to D’s liquidator(s).

ANALYSIS

23.  It is trite that an appeal from a master’s decision to a judge in chambers is a de novo hearing.  Subject to the restriction in Order 58 rule 1(5), the hearing before me is an actual rehearing as if the application came before me for the first time.[6]

24.  Given the parties’ respective stances as stated in the above, the only matter in the appeal hearing is whether P’s application for interim payment should be allowed.

25.  Having considered the evidence before me and the parties’ respective submissions, I am of the view that P has made out a case for interim payment in respect of the Sum.  None of the points put forward by Mr Tam constitutes a valid objection to P’s application for interim payment.  Accordingly, the court’s discretion should be exercised in favour of allowing P’s application for interim payment.

26.  Firstly, there is no basis for D to say that the assessment of damages will take place in the near future.  Five factual witnesses will give oral evidence in the assessment exercise.  The hearing dates of the assessment exercise have not yet been fixed. Realistically, it cannot be said that the assessment of damages will take place soon.  On the contrary, P would still need to wait for a long time before knowing the outcome of the assessment exercise.

27.  Secondly, it would not be necessary for P to show that there would be prejudice to P if no interim payment is ordered.  As said by Le Pichon J (as she then was)  in Chan Yin Man v Lee Shu Man[7]:

“16. Although it was not part of the submissions that the Plaintiffs have failed to adduce evidence of need or prejudice, I would add that such a submission would not have succeeded, there being no restriction implicit in the rules which prevents an interim payment order being made in the absence of evidence of need or prejudice. See Schott kem Ltd. v. Bentley [1991]1 Q.B.61 at 74 B-C.”

28.  In fact, the delay in recovery is a prejudice to P.  The likely substantial period of time in waiting for the assessment of damages decision certainly points in favour of awarding interim payment.[8]

29.  Thirdly, D is not entitled to rely upon insolvency as a ground in resisting P’s application for interim payment.

(1)  D has never stated in the evidence filed in opposition to P’s application for interim payment that D is insolvent.  In fact, there is no evidence showing that D is actually insolvent.

(2)  In the WU Proceedings, P is saying that D has failed to pay the debt as stipulated in the SD to P, and hence should be wound up by the court.  P is saying the D should be deemed to be insolvent by the operation of s.178(1)(a)  of CWUMPO.

(3)  For the purpose of supporting a winding-up petition, deemed insolvency would be sufficient, regardless of whether or not the company is actually solvent.  Actual solvency is no defence to a winding-up if the petitioning debt is undisputed.[9]

(4)  P’s evidence saying that D is impecunious should be understood in the context of the WU Proceedings.  What P has said in fact is that D should be deemed as insolvent as a result of not complying with the SD.

(5)  However, the debt as stated in the SD is disputed by D.  D is saying that P is not entitled to invoke the deeming provision in s.178(1)(a)  of CWUMPO because the debt as stated in the SD is subject to bona fide dispute.

(6)  By contesting the WU Proceedings, D is actually denying both deemed insolvency and actual insolvency. D cannot deny insolvency in the WU Proceedings, and rely upon insolvency as a ground to resist P’s application for interim payment in these proceedings.  It is not open to D to blow hot and cold.  As submitted by Mr Tang, to do so is disingenuous and is an abuse of process.

(a)  In Berthier Godown Ltd v E Wah Realty Ltd[10], Mortimer J (as he then was)  said:

“… if the party seeks to raise new matters in separate proceedings or seeks to reverse a previous assumption that has been the basis of earlier proceedings in new proceedings, that amounts, first of all, to an abuse of process and second, he is estopped from doing so …” (Emphasis added)

(b)  In Chan Chun Chuen v Kao, Lee & Yip[11], DHCJ Anson Wong SC at [30]:

“(3)  It may be an abuse of process for a party, with full knowledge of the facts, to advance a claim that is diametrically opposed to its position taken in an earlier set of proceedings. What constitutes an abuse of process may vary with the circumstances of each case.

(4)  In this type of case, the abuse lies in its effect on the “integrity of the administration of justice”. Where a party with full knowledge of the facts advances a claim which is diametrically inconsistent with his allegations in previous proceedings, the integrity of the justice system would be no less compromised simply because his previous allegations were not followed through to judgment.” (Emphasis added)

(7)  D has chosen not to make an application under s.181 of the CWUMPO for an order to stay the proceedings in this case pending the outcome of the WU Proceedings.

(8)  In the circumstances set out in the above, D cannot rely upon insolvency as a ground to resist P’s application for interim payment.

(9)  If an interim payment order is made, that order is not a validation order under s.182 of the CWUMPO. In HJ Innocell Limited v The Boon Khuan[12], the defendant requested security for costs from the plaintiff. There was an extant winding-up petition by the defendant against the plaintiff. In resisting security for costs, the plaintiff tried to argue that it was unable to pay by reason of CWUMPO s.182. DHCJ Leung rejected this argument and said at [28]:

“If necessary, a validation order may be sought from the Companies Court to enable the plaintiff to utilize the funds. I have no reason for suspecting that the defendants being the petitioner will not consent to that, if such funds would be utilized to satisfy the outstanding costs order (or an order for security for costs, if made).”

(10)  The issue of validation under s.182 of the CWUMPO and the interim order sought by P are two separate and distinct matters. If the interim payment order is made, if necessary, P may proceed to seek the necessary validation from the Companies Court in order to get the payment from D.

(11)  At the end, if a winding-up order is made against D in the WU Proceedings, whether any interim payment paid to P should be returned to the liquidator(s)  would depend upon whether there is any other creditor(s)  and if yes, how much is owed by D to the other creditor(s). Suffice to say that D has not filed any evidence saying that it has some other creditor(s)  or potential creditor(s)  apart from P.

30.  Mr Tam has made some further points in the appeal hearing to support D’s position.  With respect, I am not persuaded by Mr Tam’s submissions.

(1)  Mr Tam submits that requiring D to pay the Sum to P as interim payment would cause hardship to D.  With respect, there is no evidence showing that such an interim payment order would put D into any hardship.  In fact, Mr Tam has confirmed that D’s position is that it is solvent and is able to pay off all its debts.  That being the case, there is simply no basis upon which D may put forward hardship as a ground to oppose P’s application for interim payment.

(2)  Mr Tam has referred me to an authority in the appeal hearing, ie Chellic Industries Ltd v Datacom Wire & Cable Co Ltd[13]. In that case, the subject matter is a stay application made by a contributory of the company in the winding-up proceedings pursuant to s.181 of the CWUMPO. That company had more than one creditor.  The court granted the stay application.  The court said that a stay would in ordinary circumstances be ordered with a view to securing equal distribution of assets amongst creditors in the same class.  In my view, D cannot derive any assistance from that case.

(a)  D has not made any stay application pursuant to s.181 of the CWUMPO.  The matter before me today is P’s appeal concerning its application for interim payment.  No stay application pursuant to s.181 of the CWUMPO is before me.

(b)  Further, as said in the above, D is saying that it is solvent.  Further, there is no evidence showing that D has some other creditor(s)  or potential creditor(s)  apart from P.  There is simply no basis upon which D may say that the making of the interim payment order sought by P would cause any unfair distribution of assets between or among any creditors of D.

31.  For the reasons above, I allow P’s application for interim payment, and the amount covered by the interim payment order should be the Sum.

32.  For the sake of completeness, I also record that at the end of the appeal hearing, Mr Tam has asked me that if the interim payment sought by P is ordered, there be a direction for speedy trial so that the assessment of damages can take place in the near future.  I decline to give that direction.  In my view, there is no sufficient urgency in this case justifying a speedy trial.

DISPOSITION

33.  I allow P’s appeal.  The Master’s decision is varied to the extent that the order dismissing P’s application for interim payment be set aside, and there be an order that D do pay the Sum to P as interim payment.

34.  Costs of the appeal should follow the event and be paid by D to P.  With no disrespect to Mr Tang and Mr Lau, there is no sufficient complexity in this matter justifying a certificate for two counsel.  The costs payable by D to P would be summarily assessed.  Counsel have agreed that in accordance with the TA, those costs should be assessed on solicitor and own client basis.  I so order.  Having considered the submissions made by counsel, I summarily assess those costs at HK$181,500.

35.  Lastly, it remains for me to thank all counsel for the assistance rendered to the court.