CHAN GLORIA v. LAM FUK HOI AND ANOTHER

DCCJ4405/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4405 OF 2015

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DECISION

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THE APPLICATION

1.  This is an application by the 1^st and the 2^nd defendants to strike out the plaintiff’s Statement of Claim and Defence to Counterclaim by a Summons dated 23 May 2016 and subsequently amended on 10 June 2016, under Order 18 rule 19(1)(d) of the Rules of the District Court (“Striking-out Application”).  This matter was adjourned by another Judge on 19 September 2016 pending the determination of an application by the respondent (ie the plaintiff herein) for setting aside the judgment dated 24 September 2015 under another action, LDPE 888/2015, in the Lands Tribunal.  On 26 October 2016, that application for setting aside the judgement was, by consent, adjourned sine dine with liberty to restore and that there be a stay of execution of that judgment pending the resolution of the proceedings of this action.

2.  To support this Striking-out Application, the defendants filed two affirmations both dated 23 May 2016, one by the 1^st defendant and another by Chung Hoi Ying Miranda, the solicitor for defendants.  The plaintiff did not file any affirmation in opposition.

3.  Certain facts are undisputed.  By a tenancy agreement signed on 19 February 2014 (“Tenancy Agreement”), the defendants as landlord leased Shop 1, Ground Floor, Kam Fai Building, 4 Sai Yu Street, Yuen Long, New Territories (“Shop”) to the plaintiff as tenant at a monthly rent of HK$38,000 for a term of two years from 20 February 2014 to 19 February 2016.  It is worth-noting that, under that one-page document in Chinese, clause 17 provided that “both parties agreed that the said property be leased on an ‘as-is’ basis” (“雙方同意上述之物業以現狀出租”) and clause 18 provided that “tenant should not demolish the cockloft of the said property” (“租客不可拆除上述物業之閣樓”).  It transpired that the cockloft in the Shop (“Cockloft”) was an illegal structure and the Buildings Department by a letter dated 21 November 2014 demanded that it should be demolished.  On 7 September 2015, the defendants made an application to the Lands Tribunal for recovery of possession of the Shop and the outstanding rentals, rates and government rent as well as mesne profits under the said action number LDPE 888/2015.  On 22 September 2015, the defendants applied for, and on 24 September 2015 were granted, judgment in default of opposition.  In between, on 23 September 2015, the plaintiff issued the Writ of Summons to commence this action seeking a declaration that the Tenancy Agreement was lawfully terminated by the plaintiff by reason of unlawful breach thereof by the defendants and also seeking damages with interest and costs.  On 9 November 2015, the plaintiff filed the Statement of Claim alleging, first, that the defendants had during the negotiation of the Tenancy Agreement made misrepresentation to the plaintiff that the Cockloft was legally erected (“Misrepresentation”) and, second, that the defendants were in breach of an implied term of the Tenancy Agreement that the Cockloft was legally erected (“Breach of Implied Term”).  On 3 December 2015, the defendants filed the Defence and Counterclaim denying the alleged Misrepresentation and the alleged Breach of Implied Term and at the same time making a counterclaim for damages arising from the plaintiff’s breach of the covenant to pay rent under the Tenancy Agreement.  On 31 December 2015, the plaintiff filed the Reply and Defence to Counterclaim denying liability to pay the defendants any damages because of Misrepresentation and Breach of Implied Term on the part of the defendants.

THE PARTIES’ RESPECTIVE POSITIONS

4.  For this Striking-out Application, the defendants seek to reply on two grounds and invite the Court, by exercising its inherent jurisdiction and pursuant to Order 18 Rule 19(1)(d) (the limb of “an abuse of process of the court”), to strike out the plaintiff’s pleadings, ie the Statement of Claim and the Defence to Counterclaim.  First, it is argued that the plaintiff’s pleadings should be struck out on the ground of res judicata on the basis that the facts or the issues in the plaintiff’s pleadings form part of the subject matter of the Lands Tribunal action in LDPE 888/2015.  Second, it is argued, as an alternative, that the plaintiff’s pleadings should be struck out on the basis that the alleged claims of Misrepresentation and Breach of Implied Term are both “untenable and unsustainable” as a matter of law.

5.  The plaintiff, on the other hand, seeks to argue that the issue of res judicata as suggested by the defendants does not arise here as the Lands Tribunal in LDPE 888/2015 did not have jurisdiction to determine the plaintiff’s current claim and grant the reliefs as presently sought by the plaintiff under this action.  It is also argued that the defendant’s alternative ground, namely the plaintiff’s claims of Misrepresentation and Breach of Implied Term being “untenable and unsustainable”, is without merits.  The reason, as put forward by the plaintiff, is that it is premature to decide at this stage and that the plaintiff is entitled to have those matters to be ultimately determined by the trial court.

THE LEGAL PRINCIPLES

6.  The general legal principles relevant to the Striking-out Application are clearly stated in the Hong Kong Civil Procedure 2017, Volume 1, at paragraph 18/19/4:-

“(1) Striking out only in plain and obvious cases – It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under this rule. There should be no trial upon affidavit. Disputed facts were to be taken in favour of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out. One must be careful not to drive a plaintiff from the judgment seat nor should the court decide difficult points of law. (on p. 458-459) … It is for the party seeking to strike out an indorsement on a writ or pleading to demonstrate that the case is a plain and obvious one in which the other party’s claim is bound to fail. (on p. 460) …”

ANALYSIS

Res judicata

7.  The defendants contend that the principle of res judicata, for the purpose of this application, “also covers issues or facts which are so clearly part of the subject-matter of the original litigation and so clearly could have raised then” – see Hong Kong Civil Procedure 2017, Volume 1, at paragraph 18/19/10 on p 464. The defendants argue that the plaintiff’s alleged claim of Breach of Implied Term under this action should have been brought under the earlier action in the Lands Tribunal under LDPE 888/2015, for both actions having the identical parties involving dispute on the same subject matter (ie the tenancy of the Shop) and claims on the same basis (ie breach of the Tenancy Agreement).  The defendants argue that the plaintiff’s alleged claim of Breach of Implied Term under this action should be covered by section 8(8)(d) of the Lands Tribunal Ordinance, Cap 17, where the Lands Tribunal should have jurisdiction to decide.  As such, it is argued, that the plaintiff’s relevant pleadings in this action should be struck out for offending the principle of res judicata and amounting to an abuse of process.

8.  The plaintiff, on the other hand, argues that the issue of res judicata does not arise as the Lands Tribunal does not have jurisdiction to determine the plaintiff’s claims and grant the relief as sought under this action.  Under the Statement of Claim, the plaintiff’s causes of action are Misrepresentation and Breach of Implied Term on the part of the defendants; the relief sought includes a declaration that the Tenancy Agreement be lawfully terminated by the plaintiff, return of security deposit and damages.  It is argued that section 8(8) of the Lands Tribunal Ordinance, Cap 17 does not confer on the Lands Tribunal any jurisdiction to deal with the plaintiff’s present claims.  That section, as it is argued, only applies in an “application for possession or for ejectment” where the Tribunal can make “an order for the payment of damages in respect of any breach of a condition of the tenancy or sub-tenancy” under section 8(8)(d).  As the plaintiff (being the tenant) is not making any application for possession or for ejectment but for declaration and damages, the Tribunal would not have jurisdiction to entertain her claims: see Ngai Ngok Pang and anor v Lee Syn Yuk Michelle LDPD 3030/2012 (unreported; 10 May 2013) at paragraph 15; 黃英對譚炳新 HCMP 2049/2000 (未經彙編; 2000年8月1日) at p 8.

9.  I agree with the plaintiff’s contention that her claims for declaration and damages presently pursued under this action could not have been pursued in the Lands Tribunal under the earlier action LDPE 888/2015 commenced by the defendants in the first place.  The reason is that, the plaintiff did not apply for “possession” or “ejectment” under LDPE 888/2015 (the defendants did), her present claim for damages (let alone declaration), if made by way of counterclaim which would be treated as an independent action (see Hong Kong Civil Procedure 2017, Volume 1, at paragraph 15/2/4), did not fall within the ambit of section 8(8)(d) of Cap 17 and the Tribunal would not have jurisdiction to entertain such claim.  As such, the plaintiff’s pleadings in this action do not offend the principle of res judicata, do not constitute an abuse of process of the court under Order 18 rule 19(1)(d) and should not be liable to be struck out.

Claims of Misrepresentation and Breach of Implied Term

10.  The defendants’ second ground, which is pursued as an alternative to the ground of res judicata, is that the plaintiff’s claims of Misrepresentation and Breach of Implied Term in respect of the Cockloft are both “untenable and unsustainable” as a matter of law and that the plaintiff’s pleadings which incorporated such claims should be struck out.  In respect of the claim of Misrepresentation, it is argued that the plaintiff being the representee had elected not to rescind the Tenancy Agreement but to treat it as terminated, she by so doing had elected to affirm the contract, which election once made would be final and binding, and therefore could not continue to pursue the alleged claim of Misrepresentation. In respect of the claim of Breach of Implied Term, it is argued that clause 18 of the Tenancy Agreement merely stated that the plaintiff should not demolish the Cockloft but did not stipulate as an implied term, as suggested by the plaintiff, that it was a legal structure; and it is also argued that the court should not imply the term that the Cockloft was legally erected into the Tenancy Agreement as it was comprehensive enough.  Finally, it is argued that the plaintiff’s two causes of action, in relation to the respective claims of Misrepresentation and Breach of Implied Term, cannot coexist and can at most be run as alternatives.  The reason, as argued, is that the remedy for the former is “retrospective and looking backward in time” whereas that for the latter is “prospective and looking forward in time”.  The Court is asked to strike out both causes of action or at least either one of them.

11.  The plaintiff argues that the defendants’ contention that once the plaintiff had elected to terminate the Tenancy Agreement she could not continue to pursue her claim for Misrepresentation is misguided, for it overlooks the effect of section 3 of the Misrepresentation Ordinance, Cap 284 which confers upon the court power to award damages in misrepresentation claims.  With regard to the claim for Breach of Implied Term of the Tenancy Agreement, it is argued by the plaintiff that it is pre-mature for the defendants to contend that the Court should not imply a contractual term on the legality of the Cockloft as such finding would necessarily require a detailed examination of various factors enunciated under Kensland Realty Ltd v Whale View Investment Ltd & Anor (2001) 4 HKCFAR 381 at 392B, a fact-sensitive exercise which should only be done in a trial.

12.  The starting point is that it is only in plain and obvious cases that the court should exercise its summary jurisdiction to strike out a pleading.  In striking out proceedings, the disputed facts were to be taken in favour of the party sought to be struck out and that the court should not decide difficult points of law.  The court will only strike out claims which are obviously unsustainable and it must be impossible, not just improbable, for such claims to succeed before they will be struck out – see paragraph 6 above.

13.  Regarding the alleged Misrepresentation relied upon by the plaintiff, so far there was nothing but a bare denial by the 1^st defendant in his affirmation (at paragraph 21) in support of this Striking-out Application.  In any event, there should be no trial upon affirmations.  Whether the plaintiff is entitled to claim damages out of the alleged Misrepresentation in the circumstances of this case (for instance, the plaintiff had elected to terminate instead of rescinding the Tenancy Agreement) and, how, if at all, section 3 of the Misrepresentation Ordinance, Cap 284 is to be applied, all involve matters of law which warrant further and full arguments in the factual context of the case.  I have also considered the plaintiff’s legal argument, by relying on the textbook “Misrepresentation, Mistake and Non-Disclosure”, 4^th edition, at paragraphs 8-01 and 8-41, that there can be circumstances in which a defendant in making a misrepresentation breaches a contractual obligation and that the remedy of termination of the contract will sometimes be available arising out of a misrepresentation where the representation was incorporated into the contract.  It has all along been the plaintiff’s case that the legality of the Cockloft was a contractual term (either incorporated or implied) in the Tenancy Agreement and that it was breached by the defendants by making the alleged Misrepresentation.  All those plaintiff’s arguments as aforesaid are, in my view, not obviously untenable and unsustainable as contended by the defendants. 

14.  With regard to the claim of Breach of Implied Term, I again do not consider that it can be determined at this stage without a full trial.  It is not disputed by parties that various matters as recited in Kensland Realty Ltd (see paragraph 11 above) are to be considered before the court can decide on whether a particular term is to be implied in the contract in question.  Those requirements to be satisfied before the court would agree to imply a particular term are (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.  The court needs to examine closely clauses 17 and 18 of the Tenancy Agreement (see paragraph 3 above) with reference to other terms of the contract, the parties’ intention and all the surrounding circumstances before it can decide on whether those requirements under Kensland Realty Ltd are satisfied and whether the legality of the Cockloft should be included as an implied term of the Tenancy Agreement.  In my view, those matters, as they now stand, are far from being clear in the absence of evidence from the parties (let alone proper cross-examination of any of them) and full argument in the factual context of the case.  I am not satisfied that this claim of Breach of Implied Term discloses no reasonable cause of action or being untenable and unsustainable as argued by the defendants and that it should be struck out at this stage. 

15.  Finally, even assuming the defendants are right in their proposition that the two claims of Misrepresentation and Breach of Implied Term can only be pursued as alternatives by the plaintiff, it is not fair nor is it appropriate at this interlocutory stage, in the absence of evidence and full arguments as aforesaid, for either one of them to be struck out as requested by the defendants.

DISPOSAL

16.  Accordingly, for the reasons given above, I dismiss this Striking-out Application.  I make an order nisi that the costs of this application, with Certificate for Counsel, be to the plaintiff, to be taxed if not agreed, unless an application for variation is made within 14 days from the date of this decision, that costs order shall become absolute.