WORLDWIDE FLIGHT SERVICES HOLDINGS S.A. ROYAL CARIBBEAN CRUISES LTD AND ANOTHER v. KAI TAK CRUISE PLAZA LTD AND ANOTHER

HCA 1157/2016

[2018] HKCFI 1639

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1157 OF 2016

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J U D G M E N T

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Introduction

1.  This is the Plaintiffs’ application for summary judgment under RHC O 14 r 1 alternatively interim payment under RHC O 29 r 12(b) against the Defendants.

2.  The Plaintiffs are the tenant of inter alia the premises known as Shop Nos. S201 and S202 on the 2^nd floor of Kai Tak Cruise Terminal, No 33 Shing Fung Road, Kowloon, Hong Kong (“Premises”) under a Tenancy Agreement dated 1 March 2012 with the HKSAR Government.

3.  By a Sub‑Lease between the Plaintiffs and the 1^st Defendant (“Sub‑Lease”), the Plaintiffs sub‑let the Premises to the 1^st Defendant to operate as a duty free style department store for a term of 9 years, 7 months and 14 days commencing on 15 October 2013.  Under Clause 2.01 of the Sub‑Lease, the rent for the Premises shall be payable by the 1^st Defendant to the Plaintiffs exclusive of rates, utility and other charges and outgoings in advance on the first day of each calendar month without deduction, set‑off or claim whatsoever.  Under Clause 4.01(b) of the Sub‑Lease, the 1^st Defendant covenanted with the Plaintiffs to pay and discharge (as from the commencement of the term) all rates quarterly in advance within the months of January, April, July and October each year.

4.  By a Deed of Guarantee between the Plaintiffs and the 2^nd Defendant dated 20 November 2013, the 2^nd Defendant agreed to indemnify the Plaintiffs throughout the term of the Sub‑Lease against inter alia any and all claims, damages, demands, losses, liability and expenses whatsoever which the Plaintiffs may sustain by reason of or arising from any act, default or neglect of the 1^st Defendant in the performance and observance of its obligations under the Sub‑Lease (“Guarantee”).

5.  By an agreement between the Plaintiffs and the 1^st Defendant as evidenced by emails exchanged between Mr Thomas Fung of the 1^st Defendant and Mr Chris Ho of the Plaintiffs dated 8 August 2014 (“Electricity Agreement”), the Plaintiffs agreed to allow the 1^st Defendant to use one electric socket at the loading area on the 1^st floor of Kai Tak Cruise Terminal for the supply of electricity to a container located there at the cost of HK$500 per calendar month from 1 July 2014 until further notice.

6.  The Plaintiffs claim that, in repudiatory breach of the Sub‑Lease, the 1^st Defendant has failed to pay the monthly rent and rates since 1 March 2015 (save for the month of September 2015).  The Plaintiffs further claim that by a letter dated 18 April 2016 from their solicitors to the 1^st Defendant’s solicitors, the Plaintiffs accepted the 1^st Defendant’s repudiation of the Sub‑Lease, alternatively exercised their right under Clause 11.01(a) to terminate the Sub‑Lease with immediate effect.  These two dates, as well as the events in question, are not disputed by the Defendants.  Notwithstanding the termination of the Sub‑Lease, the 1^st Defendant has so far failed to deliver vacant possession of the Premises back to the Plaintiffs.  This is also not in dispute.

7.  As for the Electricity Agreement, the Plaintiffs claim that the 1^st Defendant was in breach of it for failing to pay the monthly charges under it from December 2015 to April 2016 in the total sum of HK$2,500.

8.  As far as summary judgment is concerned, in their summons dated 11 September 2017, the Plaintiffs claim against the 1^st Defendant for vacant possession of the Premises and the said sum of HK$2,500.  The Plaintiffs further claim against both Defendants final and interlocutory judgment for

(1)  the sum of HK$7,245,830.64 being the base monthly rental in respect of the Premises payable for the periods 1 March 2015 to 30 August 2015 and 1 October 2015 to 30 April 2016 and rates payable for the period from 1 January 2016 to 30 June 2016 as claimed in paragraph 9 of the Statement of Claim herein;

(2)  the sum of HK$53,608.70 being the balance of the rates in respect of the Premises for the period 15 October 2013 to 31 December 2015 as claimed in paragraph 10 of the Statement of Claim herein;

(3)  the sum of HK$340,472.54 being the interest accrued up to 30 April 2016 at the rate of 3% per annum over prime rate quoted by The Hongkong and Shanghai Banking Corporation Limited as claimed in paragraph 11 of the Statement of Claim herein;

(4)  the sum of HK$293.75 being the interest accrued on the Adjustment up to 30 April 2016 at the rate of 3% per annum over prime rate quoted by The Hongkong and Shanghai Banking Corporation Limited as claimed in paragraph 12 of the Statement of Claim herein;

(5)  interest on the sums of HK$7,245,830.64 and HK$53,608.70 from 1 May 2016 at the rate of 3% over the prime rate of quoted by The Hongkong and Shanghai Banking Corporation Limited (currently at 5% per annum) to the date of judgment and thereafter at judgment rate until payment in full as claimed in paragraph 13 of the Statement of Claim herein;

(6)  the sum of HK$8,000.00 being the legal costs incurred by the Plaintiffs as claimed in paragraph 14 of the Statement of Claim herein;

(7)  mesne profits at various rates from 1 May 2016 to the date when vacant possession of the Premises is delivered by the 1^st Defendant to the Plaintiff;

(8)  damages for breach of the Sub‑Lease to be assessed.

Deliberation

9.  It is trite law that in a RHC O 14 application, the defendant bears the burden of satisfying the Court, in respect of the claim or part of the claim, that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of that claim or part.  If the defendant fails to do so, the court may give judgment for the plaintiff.

10.  It is also trite law that a tenant’s covenant to pay rent is regarded as independent of all other covenants or obligations under a lease.  Hence, a tenant’s obligation to pay rent does not depend on the landlord’s compliance of its obligations under the lease.  In Golden Sunrise Ltd v Lee Kwok Hung [2005] 1 HKC 466 at [37]‑[39] and [41], Chu J (as she then was) observed as follows:

“ 37. In the absence of express agreement, the common law does not imply into a lease a condition or term that the property is fit for the purpose for which it is let. Accordingly, a tenant takes the property subject to any defects existing at the time of the letting, and to any events that subsequently affect its value. Accordingly, even where the property has become useless to the tenant by reason of the landlord’s neglect of an obligation to repair, the rent continues to be payable: see Halsbury’s Laws of England (Fourth Edition Reissue) para.243.

38. Further, in the absence of express agreement to the contrary, the covenant to pay rent has been regarded as independent of the other covenants or obligations under a lease, including, for example, the covenant for quiet enjoyment: Edge v Boileau and Others [1885] 16 QB 117, see also Taylor v Webb [1937] 2 KB 283.

39. It follows that under the law, the 2^nd defendant cannot claim to be released from the obligation to pay rent on the basis that the landlord is in breach of an implied term to maintain and repair the common part of the building in which the Shop is situated.

…

41. In the circumstances, even if it can be established that the plaintiff is in breach of an implied term in the tenancy agreement, which is doubtful, the 2^nd defendant remains liable to pay the rent and rates. The 2^nd defendant’s failure and refusal to pay rent since October 2003 constitutes a breach of the covenant to pay rent that entitles the plaintiff to forfeit the tenancy.”  

11.  Despite what was pleaded in the amended Defence and Counterclaim, there is no dispute that the 1^st Defendant was in default in paying rent, rates and other charges since 1 March 2015.  The Defendants further accept that the Plaintiffs were entitled to terminate the Sub‑Lease as it did.  According to paragraph 17 of Mr Pang SC’s skeleton submissions, the issue herein is whether there are other reasons that this matter should go to trial.  In this regard, 5 matters have been raised in Mr Pang SC’s skeleton submissions.

Express/implied condition

12.  It is the Defendants’ case that there was an express agreement between the Plaintiffs and the 1^st Defendant alternatively that it was an implied condition of the Sub‑Lease that the Plaintiffs would provide or cause the Hong Kong Government to provide infrastructural support including traffic arrangements for customers to and from Kai Tak Cruise Terminal to facilitate the 1^st Defendant’s business.

13.  As far as express agreement is concerned, Ms Wu submits and this court agrees that the Defendants have not argued for its existence with any conviction.  In particular, the Defendants have failed to “condescend into particulars” of when, where, between whom the alleged agreement was made or the consideration for it.  

14.  Further, the terms of the alleged agreement are highly ambiguous. For instance, there is no explanation as to what exactly was agreed by means of the phrases “infrastructural support” and “traffic arrangements for customers to and from Kai Tak Cruise Terminal”.  It would appear from paragraph 19 of his skeleton submissions that Mr Pang SC is alleging that there was insufficient means of public transport to and from Kai Tak Cruise Terminal to handle the number of passengers.  If so, the Defendants are duty bound to explain, which they have failed to, what was meant to be sufficient means of public transport and in what ways the Plaintiffs have failed to provide it or cause the Government to provide it.

15.  Lastly, the alleged express agreement is inconsistent with Clause 9.03 and Clause 13.11 of the Sub‑Lease, the effect of which is that the terms of the Sub‑Lease constitute the entire agreement between the parties.

16.  In his skeleton submissions, Mr Pang SC has instead focused on the alleged implied condition.

17.  In Kensland Realty Ltd v Whale View Investment Ltd & Another (2001) 4 HKCFAR 381 at [23], the Court of Final Appeal, adopting the approach of the majority in BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 at 26, held that in order for a term to be implied into a contract, the following conditions must be satisfied:

(1)  It must be reasonable and equitable.

(2)  It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it.

(3)  It must be so obvious that it goes without saying.

(4)  It must be capable of clear expression.

(5)  It must not contradict any express term of the contract. 

18.  In this court’s view, it is quite obvious that the Defendants cannot satisfy at least conditions (2), (3) or (4).  To start with, there is no explanation in Mr Pang SC’s skeleton submissions as to why the Sub‑Lease could not be effective without the alleged implied condition.  All that Mr Pang SC could say in paragraph 22 of his submissions is that “Thus, to give business efficacy to the contract, it was reasonable in all circumstances” to imply the alleged condition.  Further, the alleged implied condition is not so obvious that it goes without saying — the 1^st Defendant itself could have provided or caused the HK Government to provide the necessary or suitable transportation arrangements for its customers.  It is not at all obvious to this court why the obligation must fall on the Plaintiffs.  Lastly, in paragraph 14 above, this court has already referred to the ambiguity of the phrases “infrastructural support” and “traffic arrangements for customers to and from Kai Tak Cruise Terminal”.  Such ambiguous phrases clearly fail to satisfy condition (4).

19.  For these reasons, this court rejects the submission based on the alleged express or implied condition.

Derogation from grant

20.  At paragraphs 24 and 25 of his skeleton submissions, Mr Pang SC argues that against the background of the Sub‑lease, there is also a triable issue that the Plaintiffs’ failure to provide infrastructural support amounts to a derogation from grant, ie a breach of the Sub‑Lease.

21.  In Platt v London Underground Ltd [2001] 2 EGLR 121 at 122, Neuberger J (as he then was) summarized the principles as thus:

“ 1. It is well established that a landlord, like any grantor, cannot derogate from his grant. To put it in more normal language, as has been said in a number of cases, a landlord cannot take away with one hand that which he has given with the other: see, for instance per Younger LJ in Harmer v Jumbil (Nigeria) Tin Areas Ltd (1921) 1 Ch 200 at pp 225‑226 and Lord Denning MR in Molton Builders Ltd v Westminster City Council (1975) 30 P&CR 182 at p186.

2. In order to determine whether a specific act or omission on the part of the landlord constitutes derogation from grant, it is self‑evidently necessary to establish the nature and extent of the grant: see Leech v Schweder (1874) 9 App Cas 463 at p467, per Mellish LJ.

3. The exercise of determining the extent of the implied obligation not to derogate from grant] involves identifying what obligations, if any, on the part of the grantor can fairly be regarded as necessarily implicit, having regard to the particular purpose of the transaction when considered in the light of the circumstances subsisting at the time the transaction was entered into per Sir Donald Nicholls V-C in Johnston & Sons Ltd v Holland [1988] 1 EGLR 264 at p267M.

4. There is a close connection, indeed a very substantial degree of overlap, between the obligation not to derogate from grant, the covenant for quiet enjoyment and a normal implied term in a contract. Thus, in words that apply equally to an implied term in a contract, Bowen LJ said in Myers v Catterson (1889) 43 ChD 470 at 481, in relation to the derogation from grant principle, that one should give effect to what he called ‘the obvious intention of the parties, so as to give the transaction between them a minimum of efficacy and value which upon any view of the case it must have been their common intention that it should have’ …” (emphasis added)

22.  Apart from a lengthy citation of the principles summarised in Platt v London Underground Ltd, there is no serious attempt by Mr Pang SC as to why the Plaintiffs’ failure to provide “infrastructural support” amounts to a derogation from grant.  For reasons already explained in paragraph 18 above with regard to implied condition, it does not appear to this court it was obviously the intention of the parties that the Plaintiffs should provide or cause the Government to provide the so‑called “infrastructural support” or “traffic arrangements for customers to and from Kai Tak Cruise Terminal”, so as to give the transaction a minimum of efficacy and value.  For this simple reason, this court rejects the submission based on the alleged derogation of grant.

Blockages

23.  At paragraphs 26 and 27 of his skeleton submissions, Mr Pang SC said this:

“ Blockages

26. It is claimed that the Plaintiffs placed blockages and/or barriers between the Departure Hall and the Premises, thus passengers were not allowed to leave the Departure Hall and visit the Premises: §32 MKK Affirmation [A/62]. The Plaintiffs on the other hand claim such blockages were placed by cruise operators or the Government: §§39, 40, BJC 2^nd Aff [A/79]. Whether those were in fact blockages or who placed them needed to be explored at trial and could not be resolved on affirmation at the stage.

27. If blockages were in fact found, such blockages may amount to derogation.”

24.  Again, the Defendants have failed to “condescend into particulars” of the basis on which they claim it was the Plaintiffs who placed those blockages and/or barriers, when the Plaintiffs placed them, how often and for how long.  Nor is there any explanation by the Defendants as to why those so‑called blockages and/or barriers “may” amount to derogation.  The point is not pleaded in the amended Defence and Counterclaim.

25.  In Lady Anne Tennant v Associated Newspapers Group Ltd [1979] FSR 298, Megarry V‑C famously said:

“ A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff. You do not get leave to defend by putting forward a case that is all surmise and Micawberism.”

26.  It seems to this court the submission that “whether those were in fact blockages or who placed them needed to be explored at trial” is exactly what Megarry V‑C referred to as “surmise and Micawberism” and the Defendants are not entitled to leave to defend by putting forward such a case.  For this simple reason, this court rejects the submission based on the alleged blockages as a derogation of grant by the Plaintiffs.

Quantum

27.  2 matters have been raised by the Defendants concerning quantum of the Plaintiffs’ claim.

28.  First, at paragraph 9 of the amended Defence and Counterclaim, the Defendants have pleaded an agreement between the Plaintiffs and the Defendants that a rent‑free period from 1 March to 31 August 2015 was granted to the Defendants.  No particulars were provided in the amended Defence and Counterclaim or the Defendants’ affidavit in opposition as to when, where, how and between whom of the parties the alleged agreement was entered into.  

29.  At paragraph 28 of his skeleton submissions, Mr Pang SC appears to be relying on a table exhibited as “BJC‑13” to Mr Cowne’s 2^nd affidavit which stated the rent claimed by the Plaintiffs for that period was “postponed until 2017”.  While there is no explanation by Mr Cowne as to why those words appear in the table, they certainly do not provide the necessary evidential basis for the alleged rent‑free period from 1 March to 31 August 2015.  Mr Pang SC goes on to submit that the postponement of rent for that period and the absence of an explanation from the Plaintiffs raise an issue whether there was in fact an agreement between the parties for a rent‑free period, thus diminishes the Plaintiffs’ claim for arrears of rent.  It seems to this court that is a non sequitur and wholly without merits.

30.  In any event, the alleged agreement is inconsistent with the terms of the Sub‑Lease (which does not provide for the alleged rent‑free period) and cannot survive the entire agreement clauses set out in Clause 9.03 and Clause 13.11.

31.  The 2^nd point about quantum raised by the Defendants is that in accordance with Clause 3.01 of the Sub‑Lease, the 1^st Defendant had paid a deposit in the sum of HK$2,779,500 (for rent) and HK$138,975 (for rates) upon execution of the Sub‑Lease and that the Plaintiffs should account to the Defendants for the said deposit in reduction of their claims herein.

32.  Clause 3.01 provided that: 

“ … The Deposit shall be retained by the Landlord for its own use and benefit throughout the Term with power for the Landlord, without prejudice to any other right or remedy hereunder, to deduct thereform … any loss or damage sustained by the Landlord as the result of any non‑observance or non‑performance by the Tenant of any such agreements stipulations or conditions. … At the expiration or sooner determination of this Lease if the Tenant shall have paid all Rent, and other sums due hereunder and if there shall be no breach of any of the covenants on the Tenant’s part to be observed and performed, the Landlord will repay to the Tenant the Deposit after delivery of vacant possession of the Premises to the Landlord but without any interest thereon but… if there shall be any breach of this Lease or any of them the Landlord shall pay or apply the Deposit or such part thereof towards remedying such breach …”

33.  On the express terms of Clause 3.01, the deposit is only repayable to the 1^st Defendant if there was no breach of the Sub‑Lease and after delivery of vacant possession of the Premises back to the Plaintiffs.  Ms Wu submits and this court agrees that pending delivery of vacant possession of the Premises by the 1^st Defendant to the Plaintiffs and pending the assessment of damages for breach of the Sub‑Lease prayed for in the Plaintiffs’ RHC O 14 summons, it cannot presently be ascertained whether the 1^st Defendant has caused any further loss or damage which the Plaintiffs are entitled to apply the deposit towards remedying such breaches and losses.  For this reason, the Plaintiffs are under no obligation to deduct the deposit from their claims against the 1^st Defendant at this stage.

Counterclaim

34.  The first matter to note is that the Defendants have not pleaded a defence of set off in its amended Defence and Counterclaim.  They simply argue that by virtue of their counterclaim, they are entitled to unconditional leave to defend (or a stay of the judgment in favour of the Plaintiffs until trial of the counterclaim).

35.  The second matter to note is that the Defendants’ counterclaim has been pleaded at paragraphs 34 to 37B of the amended Defence and Counterclaim on the basis of

(1)  the Plaintiffs’ failure in providing or causing the Hong Kong Government to provide infrastructural support to facilitate the 1^st Defendant’s business in breach of the Sub‑Lease or as a derogation of grant;

(2)  the Plaintiffs’ breach of an agreement with the Defendants by failing to improve arrangement of driving cruise passengers to other shopping malls, failing to provide infrastructural support and creating various blockages, resulting in operating deficits totalling over HK$107 million and over HK$40 million of renovation and decoration costs;

(3)  water dripping from the ceiling since early 2016[1] causing damage to inter alia flooring and sales counter in the Premises but without identifying the cause of it except the 2^nd Defendant’s suspicion that it could be caused by the suspension of electricity supplies[2]; 

(4)  the Plaintiffs, since September 2017, placing a bin of rubbish and debris in front of a Container Store Room previously provided to the 1^st Defendant causing contamination and damage to the items stored, again without providing any particulars of the contamination or damage.

36.  For reasons stated earlier in this judgment, this court has already rejected the Defendants’ submissions based on the alleged express/implied condition, the alleged derogation of grant or the alleged blockages.  As for the other aspects of their counterclaim, they are nothing but bare assertions and the Defendants have once again failed to “condescend into particulars”.  And as far as the alleged water leakage or contamination is concerned, Chu J in Golden Sunrise Ltd v Lee Kwok Hung at [37] has made it clear that a tenant takes the property subject to any defects existing at the time of the letting, and to any events that subsequently affect its value.  While there is no application by the Plaintiffs to strike it out, this court does not find the alleged counterclaim credible or has any sufficient legal basis.  For these reasons, this court is not prepared to grant leave to defend on the basis of the counterclaim.

Conclusion

37.  To conclude, this is a simple landlord and tenant dispute.  The Defendants have failed to raise any triable issue or provide any reason why the Plaintiffs’ claims against the 1^st Defendant as tenant under the Sub‑Lease or against the 2^nd Defendant as guarantor under the Guarantee should go to trial.

Disposition and costs order nisi

38.  There shall be final and interlocutory judgment in favour of the Plaintiffs against the Defendants as claimed in paragraph 1 of their summons dated 11 September 2017, with costs to be taxed if not agreed on a solicitor and own client basis, and paid forthwith.