THE CENTER (76) LTD v. VICTORY SERVICED OFFICES (HK) LTD

DCDT797/2020

[2020] HKDC 419

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO 797 OF 2020

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REASONS FOR DECISION

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A.    Background

1.  The plaintiff (the “Landlord”) is the registered owner of 76^th Floor, The Center, 99 Queen’s Road Central, Hong Kong (the “Premises”).  The Landlord agreed to let the Premises to the defendant (the “Tenant”) pursuant to a lease dated 26 June 2019 (“the “Lease”) at a monthly rent of HK$2,629,796.40.

2.  The Landlord claimed that as at 18 May 2020, there was HK$8,648,958 rent in arrears and applied for a warrant of distress, which was granted in 19 May 2020 (the “Warrant”).  The Tenant disputes the amount in arrears and claims that only HK$7,194,760 is due and owing.

3.  On 26 May 2020, the bailiff attended the Premises and executed the Warrant and seized various goods and chattels.  The public auction for the seized goods was scheduled to be held on 3 June 2020.

4.  On 2 June, the Tenant applied by ex parte summons for inter alia:-

(1)     The Tenant to pay HK$7,194,760 by 4 monthly instalments of HK$1,500,000 and 1 monthly instalment of HK$1,194,760 from July to November 2020 (the “Time for Payment Application”).

(2)     The discharge or suspension of the Warrant.

(3)     The release of goods and chattels seized by the bailiff.

(4)     A stay of proceedings.

(5)     Costs be paid by the Tenant.

5.  At the ex parte hearing, I suspended the public auction to be held on 3 June 2020 and granted leave for the Tenant to issue an inter parte summons on 2 June 2020 for the reliefs sought (the “Summons”).

6.  The substantive hearing of the Summons was fixed to be heard on 9 June 2020.  Before then, the plaintiff had already on 4 June 2020 released the goods and chattels seized.  The Landlord had also indicated on 5 June 2020 that they would be willing to withdraw the Warrant.  However, the Warrant was somehow not withdrawn and still subsisting on 9 June 2020.  The plaintiff indicated at the substantial hearing that they would ask for an order that the Warrant be withdrawn.  Thus, the only outstanding matters were the Time for Payment Application and costs. 

7.  After the substantive hearing, I dismissed the Time for Payment Application and indicated that reasons for the dismissal would be handed down.  These are my reasons.

B.    Section 98-  Landlord and Tenant (Consolidation) Ordinance (Cap 7) (the “Ordinance”)

8.  In support for the Time for Payment Application, Mr Ngai, Counsel for the Tenant, relied on section 98 of the Ordinance which provides:-

“98. Power to allow time for payment of rent

The court may, at any time, on the application of the debtor and on reasonable notice being given of the application to the person who obtained the warrant, give time for the debtor to pay the rent due from him, on such terms as it may think just and reasonable.”

9.  Counsel from both sides informed me that there had been no decided Hong Kong cases in relation to how the court would exercise such power under section 98 of the Ordinance.  Research on UK caselaw also yielded no result on how the UK courts would exercise similar powers.

10.  The only guidance offered by Mr Ngai, counsel for the Tenant, was found in Hong Kong Tenancy Law 6^th Ed P 117 where the learned author made the following commentary: -

“… The Court has power to grant time to pay ‘on such terms as it may think just and reasonable’. Presumably, both the landlord and the tenant can make submissions to the court and the tenant should support his claim that he will be able to pay with evidence of his income and of any extraordinary expenditure which has led to temporary financial difficulties. Probably the court will examine the tenant about his means. If such an order is made, the warrant will be discharged and the goods returned to the tenant.”

11.  The commentary was made without any mention of caselaw in support, presumably also because the court had not come across the need to adjudicate on the relevant section in the past.

12.  Ms Lee, the Landlord’s counsel, took the fundamental point that the Court had no jurisdiction in the current circumstances to exercise the power under section 98 of the Ordinance.  Her reasons were:-

(1)     The section serves to give indulgence to a tenant who is subject to the hardship of the goods being seized pursuant to a warrant of distress by allowing such tenant extra time to repay the rent owed, usually on terms that the execution of the warrant be in the meantime suspended or discharged.  Thus section 98 of the Ordinance would only be triggered where there is a warrant of distress in place. 

(2)     Even though the Warrant is technically still in place as it had not been withdrawn or discharged, the goods seized had already been released and the Landlord had indicated that they were prepared to withdraw the Warrant, section 98 of the Ordinance would thus be inapplicable with no hardship arising from the Warrant.

13.  Mr Ngai on the other hand argued that once a warrant of distress had been issued, the court had power to give the tenant time to pay on such terms as it might think just and reasonable.  Mr Ngai went further to submit that even when a warrant had been withdrawn or discharged, the Court still had a power to allow time to pay, so long as there had once been a warrant for distress in place. 

14.  As a fall back, Mr Ngai argued that technically, even though the goods seized had been released and the security guards had left the Warrant by the time of the substantive hearing the warrant was still in place; as the plaintiff had not yet withdrawn the Warrant. 

C.    Analysis - Jurisdiction

15.  I am of the view that as the Warrant still subsists, the court does have jurisdiction under section 98 of the Ordinance to allow time for payment of rent.  However, I do not accept Mr Ngai’s submission that so long as a warrant of distress had once been issued, the court would have jurisdiction under section 98 even if a warrant of distress is subsequently withdrawn or discharged.  Section 98 is put under the heading “Discharge of Warrant” in the Ordinance.  Clearly it is meant to deal with situations where a warrant is still in place.  I see no logical reason why if a warrant has been withdrawn or discharged, section 98 would still be applicable. 

D.    Analysis – Discretion

16.  Although I am of the view that there is jurisdiction, I would not exercise my discretion to allow time for payment of rent under section 98 for the following reasons:-

(1)     Although at the time of the hearing the Warrant was technically still in place, its effect was already spent as goods and chattels previously seized had been released, the security guards previously deployed had been dismissed.  It is not suggested that a second distress is possible under the Warrant.  There can no longer be any argument of any hardship suffered by reason of the Warrant.

(2)     The Tenant only relied on the hardship it was suffering due to its financial difficulties, in particular, the devastating effect of Covid-19 upon its business operations.  However, such hardship was independent of the Warrant.  It cannot be suggested that pure financial hardship alone could trigger the operation of section 98 in the absence of an effective warrant.

(3)     The power under section 98 is a substantial one, which in effect compels a landlord to accept payment of rent in arrears in an extended time frame.  This would not have been the contractual bargain that the landlord and the tenant had entered into.  The court would need to be presented with convincing reasons before effectively re-writing the contractual bargain between the parties.

(4)     There can be no exhaustive list of reasons which might influence the court in the exercise of its discretion.  Such reasons might include:

(a)     Whether a tenant’s inability to pay was temporary.  The court might be more ready to allow a tenant time to pay rent if it is satisfied that the inability to pay is only a transient one.

(b)     The cause of the inability to pay.  The court might consider allowing time for payment if it was a one-off incident which caused the default in rental payment.

(c)     Whether a tenant can tender security to secure payment of rent, if the court were to allow time for payment.  The court is unlikely to take the promise of a tenant at face value and subject a landlord to further risk of non-payment.  An undertaking without fortification is unlikely to be sufficient security.

(5)     Other than a bare allegation of the Regional Manager of the Tenant that an associated company in Australia would be willing to provide financial support to the Tenant to fulfil its obligations under the Lease, there was no concrete evidence which would satisfy the court of the Tenant’s ability to pay.  This associated company had provided no undertaking, promise nor assurance by way of affirmation or by way of any bank guarantees.  The Landlord had also raised doubt as to the financial soundness of the associated company.

(6)     Mr Ngai argued that a court order for the payment of rent (albeit delayed) in terms of paragraph 1 of the Summons is better than no promise of repayment from the Tenant at all, and as a result the court should make the order, presumably to offer more protection to the Landlord.  This argument is flawed.  First of all, even without any court order, the Tenant is already contractually and legally liable to pay any rent in arrears.  Secondly, if the court has already reached the conclusion that there is insufficient assurance of the tenant’s ability to repay, it should not exercise its discretion to allow time for payment.  One cannot interpret and apply the provision by turning it from one which grants an indulgence to a tenant to one which provides security to a landlord.  This is simply not the legislative intent. If Mr Ngai were correct, the court would inevitably always make an order allowing time for payment.   I reject the argument.

17.  In the circumstances, paragraph 1 of the Summons is dismissed.

18.  There be a costs order nisi that costs of the Summons be paid by the defendant to the plaintiff on a party-and-party basis, to be taxed if not agreed.