MTR CORPORATION LTD v. KA MONG MANAGEMENT LTD AND OTHERS

HCA 904/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 904 OF 2009

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D E C I S I O N

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Applications

1. In both actions, the Plaintiff applied for summary judgment against all the Defendants, and in the alternative, interim payment pending trial.

Background

2. The Plaintiff was and is the registered owner and landlord of all the shops at the 2^nd Floor, of Luk Yeung Galleria, Tsuen Wan.

(a)   By a tenancy agreement dated 10 July 2007, the Plaintiff let to the 1^st Defendant shop no. S35 for 2 years from 1 September 2008 to 31 August 2010.

(b)   By another tenancy agreement dated 1 August 2007, the Plaintiff further let to the 1^st Defendant shop nos. S25-26 for 3 years from 1 October 2007 to 30 September 2010.

(c)   Both the 2^nd and 3^rd Defendants were and are directors of the 1^st Defendant.  They executed Surety Deeds to guarantee the due performance of the 1^st Defendant under the 2 tenancy agreements.

3. On 31 March 2009, the Plaintiff commenced the present proceedings against all the Defendants.  It was said, inter alia, that the 1^st Defendant had failed to pay rent, management fees and so forth as from 1 February 2009.  The Plaintiff accepted such repudiation and therefore sued for possession of the subject shops, outstanding payments, mense profits, damages and costs.

4. The Defendants contested the proceedings and filed their Defence and Counterclaim on 18 May 2009.  Briefly,

(a)   The 1^st Defendant admitted that they had not paid the Plaintiff as alleged.  However, it was the Plaintiff who had been in breach of the tenancy agreements.

(i)    A cockroach incident happened on 4 May 2008. It caused substantial loss of profit and goodwill. The Defendants asked for damages to be quantified.

(ii)  The Plaintiff did not put up signboards to inform people of the food mall on the 2^nd Floor of the Galleria.

(iii)    The Plaintiff unilaterally cut off electricity and air-conditioning at the end of March 2009.

(b)   Regarding the 2^nd and 3^rd Defendants, they argued that the Surety Deeds were not binding on them as they were induced to sign the same under the influence of an agent of the Plaintiff.  Both of them did not know English and they never understood that they indeed signed as sureties for the 1^st Defendant.

(c)   The 1^st Defendant further counterclaimed against for the loss of profit and goodwill.  All the Defendants also pleaded a set off by way of the counterclaim.

5. In Reply and Defence to Counterclaim, the Plaintiff denied the Defendants’ allegations.

(a)   (i)  The 1^st Defendant could not operate its business from 8 May 2008 to 14 May 2008 because of its licence not having been renewed.

(ii)  The cockroach incident was denied, but in any event, it was the 1^st Defendant’s obligation to keep the shops at good repairs and condition.

(iii)    The Plaintiff was entitled to and did give notice to the Defendant for the cutting of electricity and air-conditioning.

(b)   It was denied that the 2^nd and 3^rd Defendants did not understand the Surety Deeds.

(c)   Both the counterclaim and set-off were denied.

6. On 10 August 2009, the Plaintiff took out the present application.  Affidavit evidence was filed and served by all the parties.

7. In summary, by the affidavit evidence, the Defendants argued that the 1^st Defendant, though having failed to pay as alleged, did not repudiate the tenancy.  They further said that the cockroach incident did affect their business.  They tried to keep the business going for over a year, but not successful.  In or about January 2009, they asked the Plaintiff for a rent reduction.  It was refused.  Subsequently, the Plaintiff disconnected the electricity supply and even cheated them to deliver the keys under the pretext of carrying cleaning works.  All the fitting and fixtures as well as cooking installations were left in the shops.  They on about 10 occasions tried to enter the shops, but were denied.

8. On the other hand, the Plaintiff disagreed with the Defendants’ allegations.  It was indeed on 17 June 2009 the Defendants who surrendered the keys and possession of the shops to the Plaintiff.  Further, there was indeed repudiation on the part of the 1^st Defendant.  By issuing the proceedings, such repudiation was accepted and the tenancy agreements, terminated.  The leaving of goods and chattels in the Shop was wrongful.  There was nothing wrong for the Plaintiff to ensure that only authorized persons could get access to the shops.

9. The parties appeared before me on 13 November 2009 for the substantive argument.  Mr. Victor Dawes of Counsel acted for the Plaintiff and Mr. Benjamin Chain of Counsel represented all the Defendants.  At the outset of the application, Mr. Dawes asked for leave to adduce a further affidavit updating the recent development of the matter, including that new tenancy agreements had been entered by the Plaintiff on 28 October 2009 and the quantification of damages it sought against the Defendants.  Mr. Chain was not seriously opposing the same.  I allowed it on a de bene esse basis at that time.  Now, having reviewed the matter, I see no reason why the same should not be acceded to.  I therefore confirm the necessary leave with an order nisi that costs in the cause of the applications.

Applicable Principles

10. At this juncture, I remind myself of the underlying policy of summary judgment.  It is to prevent the defendant from delaying the plaintiff to obtain judgment in a case where the defendant clearly has no defence.  Facing such application, the Court asks 2 questions.

(a)   Factually, is what the defendant says believable in light of the undisputed or indisputable circumstances?  In so doing, the Court is entitled to take into account the commercial reality as well as contemporaneous documents.  However, mini-trial on affidavit evidence shall not be embarked.  Bare assertion is sufficient and the defendant must condescend upon particulars.

(b)   Legally, if what the defendant says is believable, does it amount to an arguable defence in law?

In the end, the burden lies on the defendant to show triable issue or some other reason for a trial to be held.

11. Further, regarding the present case, the followings are noted.

(a)   Pleadings identify the issues to be tried before the Court.  A party is bound by its own pleadings and cannot run a case beyond the same.

(b)   The CJR has introduced new rules relating to “non-admission” or “denial” in the defence.  They are Order 18 rule 13(5) and (6).

“(5)   Where an allegation made in a statement of claim or counterclaim is traversed by a denial, the party who denies the allegation shall in his defence or defence to counterclaim—

(a)    state his reasons for doing so; and

(b)    if he intends to put forward a different version of events from that given by the claimant, state his own version.

(6) A party who—

(a)    fails to deal with an allegation; but

(b)    has set out in his defence or defence to counterclaim the nature of his case in relation to the issue to which that allegation is relevant,

is to be taken to require that allegation to be proved.”

(c)   The implications of the new rules can be located at para. 18/13/7 to 18/13/9 of HKCP 2010, at page 388.

“18/13/7     No “bare denials”—Paragraph (5) expressly prohibits the pleading of “bare denials”.  If a pleaded defence intends to deny a claimant’s allegations, the defence must set out and plead the “reasons” for so denying, and also must set out and plead the defendant’s own version, if the defendant intends to put forward any differing version(s) whatsoever.

  The reasons for denying must be “stated”, and hence, must be expressly pleaded in the defence or defence to counterclaim itself.

18/13/8   “state his own version”—If the responding party wishes to put forward any different version of events or facts, “his own version” must be put forward as a positive and must be expressly pleaded and set out in the defence or defence to counterclaim itself.

  If a party fails to plead “his own version”, he will be taken not to have put forward any positive case whatsoever in defence.  Accordingly, he will not be entitled to call any evidence of fact contrary to or inconsistent with the claimants pleaded contentions.

18/13/9   Put to strict proof—If a defence or defence to counterclaim fails to deal with an allegation, but has set out the nature of the case in relation to the issue which that allegation is relevant—then that party will be taken to require that allegation to be proved by the party pleading it.

  However, he will be taken not to have put forward any positive case, and accordingly, will not be entitled to call any evidence of fact contrary to or inconsistent with the other party’s pleaded contentions.”

Ruling

12. By applying the above principles to the present case, I have come to the view that summary judgment is to be entered for the Plaintiff against all Defendants.

(a)   Mr. Chain rightfully conceded that there could not be any set-off against rent in the present case.  Under common law, the covenant to pay rent is independent of other covenants, including the one for quiet enjoyment (Charmway Development Ltd v Long China Engineering Ltd, HCA 54 of 2001, unreported, 16 July 2001).  The 1^st Defendant’s counterclaim is not liquidated and the right to set-off is also specifically prohibited under Clause (1) of Section II of the tenancy agreements.

(b)   The main argument of Mr. Chain lied on:

(i)    The 1^st Defendant was (or arguably) not in wrongful repudiation when he had failed to pay rent.

(ii)  Further, when the Plaintiff had cheated the 1^st Defendant for possession of the shops, re-let the same, the 1^st Defendant indeed accepted the Plaintiff’s repudiation.

(c)   In my view, under the existing pleadings, Mr. Chain cannot run such argument because the Defendants in their Defence only “denied” the case of the Plaintiff that it had accepted the repudiation of the 1^st Defendant.  By a simple denial, the Defendants cannot run a positive case but only asks the Plaintiff to come up with the necessary proof.

(d)   After all, as a whole, I consider that the Defendants’ cases are unbelievable in the circumstances.

(i)  The cockroach incident happened some 6 months before the non-payment of rent, etc.  There has been no evidence substantiating the alleged event, not even a contemporaneous letter reserving the rights of the Defendants at all.

(ii)    The Plaintiff instructed its solicitors to issue formal letters to all Defendants demanding for outstanding payments.  There has been no reply from them.

(iii)  It is not disputed that the 1^st Defendant has failed to pay rent, etc. since February 2010.  It appears that the Defendants now try to argue that they still hold the tenancy good.  There are complaints against the Plaintiff that it has tried to bar them from claiming relief against forfeiture.  However, I have never heard anything to the effect that they are willing and able to pay the rent or any part of it at any time.

(iv) In the Defence, both the 2^nd and 3^rd Defendants tried to argue that they should not be bound because of non est factum.  I have seen no evidence from them in their affirmations filed.  I have also not heard from anything from Mr. Chain.  Bare assertion is insufficient to give rise to triable issue or some other reason for trial.

(v)   The counterclaim for loss of business and goodwill is not quantified at all.  There is also no evidence to show to the Court about the same.

(vi) The Plaintiff has re-let the shops and come up with quantified loss.  In this regard, I heard nothing from the Defendants at all.  No triable issue has been established.

Conclusion

13. To conclude, summary judgment is to be granted to the Plaintiff against all the Defendants.

(1)  Possession of the shops.

(2)  As to shop S25-26, the payment of $441,877.97

		$
(a)	Arrears of Rent (inclusive of management expenses, air-conditioning charges and promotion fee) until 31 March 2009	142,007.00
(b)	Mense profits from 1 April 2009 to 14 October 2009	485,026.00
(c)	Government rates up to 30 September 2009	8,961.00
(d)	Interest at the rate of 3% per annum above the Best Lending Rate of the Hongkong and Shanghai Banking Corporation Limited on items (a) and (b) above up to 13 November 2009	23,652.97
		659,646.97
LESS:
(e)	Rent deposit	(175,920.00)
(f)	Management fees deposit	(20,211.00)
(g)	Air-conditioning charges deposit	(16,638.00)
(h)	Fitting out deposit	(5,000.00)
		441,877.97

(3)  Regarding shop S35, the payment of $2,167,860.95

		$
(a)	Arrears of Rent (inclusive of management expenses, air-conditioning charges and promotion fee) until 31 March 2009	282,891.00
(b)	Outstanding licence fee until 31 March 2009	10,000.00
(c)	Mesne profits from 1 April 2009 up to 14 October 2009	1,945,488.00
(d)	Adjustment Rates and Rates up to 30 September 2009	84,571.00
(e)	Interest at the rate of 3% per annum above the Best Lending Rate of the Hongkong and Shanghai Banking Corporation Limited on items (a) to (d) above up to 13 November 2009	78,704.95
(f)	Damages being loss of rental income:
	(i)   monthly basic rent and Licence Fee for the rent-free or licence fee-free period from 10 November 2009 to 24 December 2009	317,423.00
	(ii)   difference in rent from 25 December 2009 to 31 August 2010 (with no Adjustment starting from 1 January 2010)	254,549.00
(g)	Damages being the stamp duty paid by the Plaintiff for the Replacement Tenancy	5,421.00
		2,979,047.95
LESS:
(h)	Rent deposit	(580,920.00)
(i)	Management fees deposit	(107,100.00)
(j)	Air-conditioning charges deposit	(88,167.00)
(k)	Licence deposit (Opening Seating Area)	(30,000.00)
(l)	Fitting out deposit	(5,000.00)
		2,167,860.95

(4)  No order is made to the applications for interim payment.

(5)  There will be an order nisi that the Defendants shall pay costs of the two proceedings and the applications, including all costs reserved and Certificate for Counsel for hearing on 13 November 2009, on full indemnity basis, to be taxed if not agreed.